SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1999
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ______________ to ____________.
Commission file number 1-652
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UNIVERSAL CORPORATION
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(Exact name of Registrant as specified in its charter)
Virginia 54-0414210
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
1501 North Hamilton Street, Richmond, Virginia 23230 804-359-9311
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(Address of principal executive offices) (Registrant's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, no par value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by "X" mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. X
--- ---
Indicate by "X" mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate market value of the Registrant's voting stock held by
non-affiliates was $820,000,0000 and the total number of shares of common stock
outstanding was 31,247,660 at September 24, 1999.
INFORMATION INCORPORATED BY REFERENCE
Certain information in the September 24, 1999 Proxy Statement for the Annual
Meeting of Shareholders of Registrant is incorporated by reference into Part III
hereof.
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2
PART I
ITEM 1. BUSINESS
A. The Company
Universal Corporation (which together with its subsidiaries is referred to
herein as "Universal" or the "Company") is the world's largest independent leaf
tobacco merchant and has additional operations in agri-products and the
distribution of lumber and building products. Universal's tobacco operations
have been the principal focus of the Company since its founding in 1918, and for
the fiscal year ended June 30, 1999, such operations accounted for 74% of
revenues and 85% of operating profits. Its agri-products and lumber and building
products operations accounted for 13% and 13% of revenues and 6% and 9% of
operating profits, respectively, during the same period. See Note 10 to
Consolidated Financial Statements for additional business segment and
geographical information.
B. Description of Tobacco Business
General
- -------
Universal's tobacco business involves selecting, buying, shipping, processing,
packing, storing and financing leaf tobacco in the United States and other
tobacco growing countries for the account of, or for resale to, manufacturers of
tobacco products throughout the world. Universal does not manufacture cigarettes
or other consumer tobacco products. Most of the Company's tobacco revenues are
derived from sales of processed tobacco and from fees and commissions for
specific services for its customers.
The Company's tobacco sales consist primarily of flue-cured and burley tobaccos
which, along with oriental tobaccos, are the major ingredients in American blend
cigarettes. The Company participates in the sales of oriental tobacco through
ownership of a minority equity interest in the largest oriental leaf merchant in
the world, Socotab, L.L.C. American blend cigarettes are enjoying increasing
popularity among consumers in many parts of the world. Consumption of cigarettes
generally has been declining in the U.S. and certain industrialized countries
and the Company expects this trend to continue in the future. At the same time,
consumption in many developing countries has increased and, as a result of the
elimination of trade barriers in Far Eastern markets and the opening of markets
in Eastern and Central Europe, a significant number of the world's tobacco
markets are more open to trade as compared to ten years ago. More importantly,
American blend cigarettes have recently gained market share in many foreign
markets, including those in Asia, Europe and the Middle East and the demand for
flue-cured, burley and oriental tobaccos has risen accordingly. For a discussion
of the impact of current economic trends in Asia on the Company, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Other Information Regarding Trends and Management's Actions."
Processing of leaf tobacco is an essential service to the Company's customers,
the tobacco product manufacturers, because the quality of processed leaf tobacco
substantially affects the cost and quality of their products. The Company's
processing of leaf tobacco includes grading in the factories, blending,
separation of leaf lamina from the stems, drying and packing to precise moisture
targets for proper aging. Accomplishing these tasks in accordance with exacting
customer specifications requires considerable skill and investment in plants and
machinery.
Universal estimates that in fiscal year 1999 it purchased or processed over 40%
of the flue-cured and burley tobacco produced in the United States, Brazil,
Zimbabwe and Malawi, which are the principal export markets of such tobaccos. In
addition, Universal maintains a presence, and in certain cases, a leading
presence, in virtually all other tobacco growing regions in the world.
Management believes that its leading position in the leaf tobacco industry is
based on its broad market presence, its development of processing equipment and
technologies, its financial position, its ability to meet customer demand and
its long standing relationships with customers. For a description of the factors
that may affect Universal's operating revenues - See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Factors That May
Affect Future Results." Universal also has a leading position in worldwide dark
tobacco markets. Its dark tobacco operations are located in the major producing
countries (i.e., the United States, the Dominican Republic, Indonesia and
northern Brazil) and other markets. Dark tobaccos are typically used for cigars
and smokeless tobacco products. After several years of rapid growth,
particularly in the premium segment of the cigar market, there is a moderate
oversupply of filler and binder styles of tobacco leaf for use in cigars. The
supply of tobacco used for cigar wrappers is, however, still tight.
Universal is represented by its buyers on all significant tobacco markets in the
United States, including flue-cured tobacco markets in Virginia, North Carolina,
South Carolina, Georgia and Florida; light air-cured (burley and Maryland)
tobacco markets in Kentucky, Tennessee, Virginia, North Carolina and Maryland;
air-cured tobacco markets in Kentucky and Virginia; dark fired and dark
air-cured markets in Virginia, Tennessee and Kentucky; and cigar/chewing tobacco
markets in Connecticut, Pennsylvania and Wisconsin.
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3
In the United States, flue-cured and burley tobacco is generally sold at public
auction to the highest bidder. In addition, the price of such tobacco is
supported under an industry-funded federal government program that also
restricts tobacco production through a quota system. The price support system
has caused U.S. grown tobacco to be more expensive than most non-U.S. tobacco,
resulting in a declining trend in exports. Industry leaders continue to explore
options including program changes to improve the competitive position of U.S.
tobacco. Other factors affecting the competitive position of U.S. tobacco in the
world market include the efficiency of the marketing system, relative costs of
production and leaf quality in the United States and in foreign countries. See
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations."
From time to time, the Company processes and stores tobacco acquired by the
flue-cured and burley stabilization cooperatives under the federal price support
program. The Company derives fees for such services, particularly in years when
a substantial portion of the domestic tobacco crop is acquired by such
cooperatives under the program. While the volume of such business fluctuates
from year to year, revenues from this business in each of the past five years
were not greater than 1% of consolidated tobacco revenues.
Universal's business of selecting, buying, shipping, processing, packing,
storing, financing and selling tobacco is also carried out in varying degrees in
a number of foreign countries including Argentina, Azerbaijan, Belgium, Brazil,
Canada, Colombia, the Dominican Republic, France, Germany, Guatemala, Hungary,
India, Indonesia, Italy, Kyrgyzstan, Malawi, Mexico, Mozambique, the
Netherlands, Paraguay, the People's Republic of China, the Philippines, Poland,
Portugal, Russia, Singapore, South Africa, Spain, Switzerland, Tanzania,
Thailand, Uganda, the United Kingdom, Zambia and Zimbabwe. In addition, Socotab,
L.L.C. has oriental tobacco operations in Bulgaria, Greece, Macedonia and
Turkey.
In a number of countries, including Argentina, Brazil, Guatemala, Hungary,
Italy, Mexico and Tanzania, Universal contracts directly with tobacco farmers or
groups of farmers, in some cases before harvest, and thereby takes the risk that
the delivered quality and quantity will not meet market requirements. The price
may be set by negotiation with farmers' groups or with agencies of the local
government. In some countries, Universal also provides agronomy services and
crop advances for seed, fertilizer and other supplies. Tobacco in Zimbabwe,
Malawi and Canada, and to a certain extent in India, is purchased under an
auction system. The Company has substantial capital investments in South America
and Africa and the performance of its operations in these regions can materially
affect the Company's earnings from tobacco operations.
Sales to foreign customers are made by Universal's sales force and through the
use of commissioned agents. Most foreign customers are long-established firms or
government monopolies.
Universal's foreign operations are subject to the usual international business
risks, including unsettled political conditions, expropriation, import and
export restrictions, exchange controls and currency fluctuations. During the
tobacco season in many of the countries enumerated above, Universal has advanced
substantial sums, has guaranteed local loans, or has guaranteed lines of credit
in substantial amounts for the purchase of tobacco. Most tobacco sales are
denominated in U.S. dollars, thereby limiting some of the Company's foreign
currency exchange risk. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation - Factors That May Affect Future Results."
Recent Developments and Trends and Factors that May Affect Future Results
- -------------------------------------------------------------------------
For a discussion of recent developments and trends in, and factors that may
affect, the Company's tobacco business, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Seasonality
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Universal's tobacco business is seasonal in nature. The United States flue-cured
tobacco markets usually open the third week of July and last for approximately
four months. The United States burley tobacco markets open in late November and
last for approximately two and one-half months. Tobacco in Brazil is usually
purchased from January through May. Other markets around the world last for
similar periods, although at different times of the year, thereby reducing the
overall seasonality in the Company's business.
Universal normally operates its processing plants for approximately seven to
nine months of the year. It purchases most of its U.S. tobacco in the
eight-month period from July through February. During this period, inventories
of green tobacco, inventories of redried tobacco and trade accounts receivable
normally reach peak levels in succession. Current liabilities, particularly
short-term notes payable to banks, commercial paper and customer advances are a
means of financing this expansion of current assets and normally reach their
peak in this period. The Company's balance sheet at its fiscal year end, June
30, normally reflects seasonal expansions in South America, Central America and
Western Europe.
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4
Customers
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A material part of the Company's tobacco business is dependent upon a few
customers, the loss of, or a substantial reduction of business from, any one of
whom would have a material adverse effect on the Company. The Company has
long-term contracts (which under certain circumstances may be amended or
terminated) with a few of these customers, and, while there are no formal
continuing contracts with the others, the Company has done business with each of
its major customers for over 40 years. For the year ended June 30, 1999, tobacco
sales to Philip Morris Companies Inc. accounted for greater than 10% of
consolidated revenues. See Note 9 to Consolidated Financial Statements.
Collectively, five other customers accounted for approximately 10% of
consolidated revenues during the same period.
Universal had orders from customers in excess of $357 million for its tobacco
inventories at June 30, 1999. Based upon historical experience, it is expected
that at least 90% of such orders will be delivered during the fiscal year ending
June 30, 2000. Typically, delays in the delivery of orders result from changing
customer requirements.
Competition
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The leaf tobacco industry is highly competitive. Competition among leaf tobacco
merchants is based on the price charged for products and services as well as the
firm's ability to meet customer specifications in the buying, processing and
financing of tobacco. Universal has a world-wide buying organization of tobacco
specialists and many processing plants equipped with the latest technology
which, management believes, give it a competitive edge. See "Properties."
Competition varies depending on the market or country involved. Normally, there
are at least four buyers on each of the United States flue-cured and burley
markets. The number of competitors in foreign markets varies from country to
country, but there is competition in all areas to buy the available tobacco. The
principal competitors in the industry that do not manufacture consumer tobacco
products and that compete with the Company on the United States markets and on
foreign markets are as follows: DIMON Incorporated, Export Leaf Tobacco Company,
and Standard Commercial Corporation. Of the significant leaf tobacco industry
competitors in the United States that are not also manufacturers, Universal
believes that it ranks first in total U.S. market share and also first in
worldwide market share.
C. Description of Agri-Products Business
The Company's agri-products business involves the selecting, buying, shipping,
processing, storing, financing, distribution, importing and exporting of a
number of products including tea, rubber, sunflower seeds, nuts, dried fruit,
and canned and frozen foods.
The emphasis of the Company's agri-products business is on value-adding
activities and trading of physical products in markets where a service can be
performed in the supply system from the countries of origin to the consuming
industries. In a number of countries, long-standing sourcing arrangements for
certain products or value-adding activities through modern processing facilities
(tea and sunflower seeds) contribute to the stability and profitability of the
business. Seasonal effects on trading are limited.
The Company provides various products to numerous large and small customers in
the food and food packaging industry and in the rubber and tire manufacturing
industry. Generally, there are no formal, continuing contracts with these
customers, although business relationships may be long-standing. No single
customer accounts for 10% or more of the Company's consolidated agri-products
revenues.
Competition among suppliers in the agricultural products in which Universal
deals is based on price as well as the ability to meet customer requirements in
product quality, buying, processing, financing and delivery. The number of
competitors in each market varies from country to country, but there is
competition for all products and markets in which the Company operates. Some of
the main competitors are: Agway, Akbar Brothers, Andrew Weir Commodities, Ennar,
Cargill, Dahlgren, Global, Metallgeschellschaft/ SAFIC Alcan,
Stassens,STT/Wurfbain, Symington, Universal Tea, and UTT (Unilever).
For a discussion of recent developments and trends in, and factors that may
affect, the Company's agri-products business, see "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
D. Description of Lumber and Building Products Business
The Company is engaged in the lumber and building products distribution business
in the Netherlands and Belgium. The majority of lumber products are sourced
outside the Netherlands, principally in North America, Scandinavia, Eastern and
Western Europe and the Far East.
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5
The Company's lumber and building products business is seasonal to the extent
that winter weather may temporarily interrupt the operations of its customers in
the building industry. The business is also subject to exchange risks and other
normal market and operational risks associated with lumber operations centered
in Europe, including general economic conditions in the countries where the
Company is located, and related trends in the building and construction
industries.
The Company's sales activities in this segment are conducted through three
business units: regional sales, wholesale/do-it-yourself (DIY) sales and
industrial sales. The regional sales unit distributes and sells lumber and
related building products through a network of regional outlets, mainly to the
building and construction market. The wholesale/DIY business unit supplies
lumber merchants, ceiling and wall contractors and DIY chains with a wide range
of lumber-related products, including panel products, ceiling tiles and doors.
The industrial sales unit primarily distributes value-added softwood products
and window frames to the prefabrication and construction industries.
The Company carries inventories to meet customer demands for prompt delivery.
The level of inventories is based on a balance between providing service and
continuity of supply to customers and achieving the highest possible turnover.
It is traditional business practice in this industry to insure most accounts and
notes receivable against uncollectibility for the majority of the amount owed.
The Company generally does not provide extended payment terms to its customers.
No single customer accounts for 10% or more of the Company's consolidated lumber
and building products revenues.
The Company's lumber and building products sales in fiscal year 1999 accounted
for approximately 20% of the total market volume of the Netherlands, which is
clearly above the market share of its largest competitor, Pont-Meyer N.V. Ten
additional competitors accounted for approximately 30% of the market share in
this period, and the balance was held by approximately 200 smaller competitors.
The primary factors of competition are quality and price, product range and
speed and reliability of logistic systems. The Company believes that its full
geographical market coverage, its automated inventory control and billing
system, and its efficient logistics give it a competitive advantage in the
Netherlands. The Company's share of the highly fragmented Belgian lumber and
building products market was approximately 3% in fiscal year 1999. For a
discussion of recent developments and trends in, and factors that may affect,
the Company's lumber and building products business, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
E. Employees
The Company employed approximately 35,000 employees throughout the world during
the fiscal year ended June 30, 1999. This figure is estimated because the
majority of the personnel are seasonal employees.
Universal believes that in the United States approximately 950 of the
non-salaried employees of its consolidated tobacco subsidiaries are represented
by unions. Most of these are seasonal employees. The Company believes that its
labor relations have been good.
F. Research and Development
No material amounts were expended for research and development during the fiscal
years ended June 30, 1999, 1998 and 1997.
G. Patents, etc.
The Company holds no material patents, licenses, franchises or concessions.
H. Government Regulation, Environmental Matters and Other Matters
The Company's business is subject to extensive governmental regulation in the
United States and in foreign jurisdictions where the Company conducts business.
Such regulation includes, but is not limited to, matters relating to
environmental protection. To date, governmental provisions regulating the
discharge of material into the environment have not had a material effect upon
the capital expenditures, earnings and competitive position of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Factors that may Affect Future Results" for a discussion of
government regulation, environmental compliance and other factors that may
affect the Company's business.
ITEM 2. PROPERTIES
Universal owns the land and building located at 1501 N. Hamilton Street in
Richmond, Virginia, where it is headquartered. The building contains
approximately 83,000 square feet of floor space. The Company also owns three
smaller office buildings located on the block adjacent to the Company's
headquarters, which contain in the aggregate approximately 18,500 square feet of
floor space.
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6
In its domestic tobacco processing operations, Universal currently owns and
operates five large, modern, high volume plants that have the capacity to
thresh, separate, grade and redry tobacco. Three of these plants are located in
North Carolina (Henderson, Rocky Mount, and Wilson), one plant is in Danville,
Virginia, and one plant is in Lexington, Kentucky. The Henderson plant has
approximately 500,000 square feet of floor space and an annual production
capacity of over 140 million pounds of green tobacco. The Wilson plant has
approximately 500,000 square feet of floor space and an annual production
capacity of over 130 million pounds of green tobacco. The plants at Rocky Mount,
North Carolina and Danville, Virginia each have a floor space of 300,000 to
400,000 square feet and an average annual production capacity of over 100
million pounds of green tobacco. In fiscal year 1999, the Company decommissioned
two processing plants - one in Oxford, North Carolina and one in Smithfield,
North Carolina. The Company expects to use the buildings that formerly housed
these two plants for storage of tobacco. The reduction in the Company's domestic
processing capacity reflects the decrease in production volume of U.S. tobacco
due to, among other things, declining U.S. cigarette consumption, declining
exports of U.S. tobacco and increased amounts of U.S. tobacco held by the
stabilization cooperatives that is part of the current worldwide oversupply of
tobacco. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." In addition, in mid September 1999, the facility at
Rocky Mount suffered catastrophic flooding due to the impact of Hurricane Floyd.
While the Company is still assessing the extent of the flood damage, the Company
has flood and other insurance on the Rocky Mount facility and the tobacco that
was in the facility in coverage amounts at least as high as the current estimate
of the damage. Tobacco processing and sales and administrative functions will be
allocated to one or more of Universal's other facilities for the remainder of
the 1999 season. The Company does not believe that this event will have a
material impact on the Company's results of operations or financial position.
The Company owns processing facilities in the following foreign countries: two
processing plants in Brazil, Italy, Malawi and Poland and one processing plant
in Canada, Hungary, the Netherlands and Tanzania. In addition, the Company owns
interests in a processing plant in each of Guatemala, Italy, and Mexico and has
access to processing plants in Argentina, India, the Philippines and the
People's Republic of China. Socotab, L.L.C. owns two oriental tobacco processing
plants in Turkey, one in Greece, one in Macedonia and a storage complex with
limited processing capabilities as well as interests in two processing plants in
Bulgaria.
The facilities described above are engaged primarily in processing tobacco used
by manufacturers in the production of cigarettes. In addition, Universal
operates plants that process cigar/chewing tobaccos in Pennsylvania, Virginia,
the Dominican Republic, Colombia, Germany, Indonesia and Brazil.
Universal owns or leases extruder plants (baling operations), packaging stations
and warehouse space in the tobacco-growing states and abroad. The Company owns
large extruder plants in Lumberton and Rocky Mount, North Carolina; and
Lexington and Bowling Green, Kentucky. In fiscal year 1999, the Company closed
down its extruder operations in Danville, Virginia and Greenville, Tennessee in
response to declining U.S. tobacco production volumes and increased use of
farmer bales in the U.S. flue-cured market. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Other Information
Regarding Trends and Management's Actions."
A portion of Universal's tobacco inventory is stored in public storages. The
Company also owns the following domestic tobacco storages:
(a) Lexington, Kentucky - 6 storages covering 127,000 square feet;
(b) Henderson, North Carolina - 6 storages covering 178,500 square feet;
(c) Oxford, North Carolina - 9 storages covering 422,000 square feet;
(d) Rocky Mount, North Carolina - 6 storages covering 353,000 square feet;
(e) Smithfield, North Carolina - 10 storages covering 416,000 square feet;
(f) Wilson, North Carolina - 12 storages covering 460,000 square feet;
(g) Danville, Virginia - 4 storages covering 153,000 square feet;
(h) Kenbridge, Virginia - 7 storages covering 243,000 square feet; and
(i) Petersburg, Virginia - 7 storages covering 220,000 square feet.
As described above, in mid September 1999, a portion of the storage facilities
at Rocky Mount were severely damaged by floods from Hurricane Floyd.
Additional storage space is leased in Lexington, Kentucky; Smithfield, Henderson
and Rocky Mount, North Carolina; and Danville, Virginia. In foreign areas,
storage space is owned or leased on a comparable scale to those in the U.S.
Lancaster Leaf Tobacco Company of Pennsylvania, Inc. owns storage space with a
capacity of 19,300 tons of tobacco and leases additional storage space. In other
U.S. tobacco areas, Universal owns or leases storages on a smaller scale.
The Company believes that properties are maintained in good operating condition
and are suitable and adequate for their purposes at the Company's current sales
levels. The facilities owned by the Company are not subject to indebtedness.
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The Company's agri-products subsidiaries own and operate a tea blending plant in
the Netherlands; a tea warehouse and office in Sri Lanka; a bean processing
plant in Park Rapids, Minnesota; and small grain processing facilities in
Delamere, North Dakota and Zevenbergen, the Netherlands. Sunflower seed
processing plants are also owned and operated in Lubbock, Texas; Fargo, North
Dakota; and Colby, Kansas. The latter facility is financed in part through a
governmental industrial development authority. The Company has leased
agri-products trading facilities around the world, including locations in the
United States, United Kingdom, Egypt, Indonesia, Kenya, Canada, Poland, Russia
and Malawi.
The lumber and building products business owns or leases 44 sales outlets and/or
distribution facilities in the Netherlands and 7 facilities in Belgium. Most of
these locations are owned. The Company also owns a softwood facility for large
scale sawing, planing and fingerjointing and a building components manufacturing
facility, which are located in the Netherlands.
ITEM 3. LEGAL PROCEEDINGS
The Company has received subpoenas for documents and information in connection
with an investigation of cigarette tobacco leaf purchases. The investigation is
being conducted by the United States Department of Justice Antitrust Division in
the Eastern District of Pennsylvania. Similar subpoenas have been received by
cigarette manufacturers and other leaf tobacco merchants. The Company is
cooperating with the investigation. While the Company at this time is unable to
predict the outcome of the investigation, it believes it has complied with the
antitrust laws.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the quarter ended June 30, 1999, there were no matters submitted to a
vote of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
The Company's Common Stock is traded on the New York Stock Exchange ("NYSE")
under the symbol "UVV." The following table sets forth the high and low sales
prices per share of the Common Stock on the NYSE Composite Tape, based upon
published financial sources, and the dividends declared on each share of Common
Stock for the quarter indicated.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
------- ------- ------- -------
<S> <C>
1999
Cash dividends declared. $ .28 $ .30 $ .30 $ .30
Market price range: High. 38 3/4 38 1/16 34 11/16 28 13/16
Low 31 1/2 32 15/16 25 9/16 23 7/8
1998
Cash dividends declared. $.265 $.280 $.280 $.280
Market price range: High. 38 5/8 41 1/2 49 1/2 44
Low 32 36 37 34 5/8
</TABLE>
The Company's current dividend policy anticipates the payment of quarterly
dividends in the future. The declaration and payment of dividends to holders of
Common Stock will be at the discretion of the Board of Directors and will be
dependent upon the future earnings, financial condition and capital requirements
of the Company. At September 23, 1999 there were 3,106 holders of record of the
registrant's Common Stock.
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8
ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR COMPARISON OF SELECTED FINANCIAL DATA FOR YEAR ENDED JUNE 30
<TABLE>
<CAPTION>
(IN THOUSANDS EXCEPT PER SHARE DATA, RATIOS, FOR THE YEARS ENDED JUNE 30
AND NUMBER OF COMMON SHAREHOLDERS)
- -------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
SUMMARY OF OPERATIONS
Sales and other operating revenues $4,004,903 $4,287,204 $4,112,675 $3,570,228 $3,280,880
Income before extraordinary item 127,276 141,258 100,873 71,350 25,639
Net income 127,276 141,258 100,873 72,246 25,639
Return on beginning common
shareholders' equity 23.2% 30.1% 24.2% 18.5% 6.7%
Per common share - Basic:
Income before extraordinary item $3.81 $4.01 $2.88 $2.04 $.73
Net income $3.81 $4.01 $2.88 $2.06 $.73
Per common share - Diluted:
Income before extraordinary item $3.80 $3.99 $2.87 $2.03 $.73
Net income $3.80 $3.99 $2.87 $2.05 $.73
===================================================================================================================
FINANCIAL POSITION AT YEAR END
Current ratio 1.30 1.31 1.32 1.29 1.27
Total assets $1,823,123 $1,998,502 $1,957,330 $1,889,513 $1,807,965
Long-term obligations 221,545 244,080 273,055 309,543 284,948
Working capital 271,825 328,768 347,542 299,778 264,713
Shareholders' equity $ 539,036 $ 547,867 $ 469,593 $ 417,305 $ 389,959
===================================================================================================================
GENERAL
Ratio of earnings to fixed charges 4.44 4.57 3.63 2.79 1.81
Number of common shareholders 2,951 3,049 3,271 3,420 3,741
Weighted average common shares
outstanding-Basic 33,437 35,190 35,076 35,038 35,014
Weighted average common shares
outstanding-Diluted 33,477 35,388 35,207 35,091 35,031
Dividends per common share $1.18 $1.105 $1.05 $1.015 $.99
Book value per common share $16.12 $15.57 $13.39 $11.90 $11.13
===================================================================================================================
</TABLE>
ALL FISCAL YEARS HAVE BEEN RESTATED TO CONFORM TO STATEMENT OF FINANCIAL
ACCOUNTING STANDARD NO. 128 "EARNINGS PER SHARE". FISCAL YEAR 1998 INCLUDES A
$16.7 MILLION ($10.9 MILLION NET OF TAX) GAIN ON THE SALE OF AN INVESTMENT.
FISCAL YEAR 1995 INCLUDES A $15.6 MILLION ($10.7 MILLION NET OF TAX)
RESTRUCTURING CHARGE.
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9
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY & CAPITAL RESOURCES
Universal Corporation continued to enjoy strong cash flow in fiscal year 1999,
which enabled the company to retain comfortable liquidity levels, reduce overall
debt, and complete several capital projects while continuing the purchase of its
common stock. In a year characterized by market uncertainty, Universal's strong
cash flow was generated by operating income as well as market-related reductions
in working capital items.
Working capital declined by $57 million to approximately $272 million in
1999, and the current ratio remained at approximately 1.3. Tobacco inventories
and accounts receivable decreased by $123 million and $67 million, respectively.
Notes payable decreased by $89 million to $497 million at year end. Continued
oversupply in the marketplace as well as a significant currency devaluation in
Brazil produced lower green tobacco prices in fiscal year 1999. These reduced
green tobacco prices were a major factor in the decrease in the Company's
tobacco inventories, accounts receivable, and notes payable in the current year.
Universal views these decreases as a temporary market condition, which will
reverse as green prices begin to rise. The Company estimates that its
uncommitted flue-cured and burley inventories at June 30, 1999, were
approximately 19 million kilos. Management does not consider such levels to be
excessive. Working capital also decreased as the Company continued to pay down
its long-term debt at maturity without refunding it on a long-term basis.
The Company believes that it has adequate resources available to meet its
needs, which are predominantly short term in nature and relate to working
capital required for financing tobacco crop purchases. Working capital needs are
seasonal, depending on the respective growing season within each geographical
area. Generally, the peak need of domestic tobacco operations occurs in the
second fiscal quarter. Foreign tobacco operations tend to have higher
requirements during the remainder of the year. The geographical dispersion and
the timing of working capital needs permit the Company to predict its general
level of cash requirements. Each geographic area follows the cycle of buying,
processing, and shipping of the tobacco crop. The timing of individual customer
shipping requirements may change the level or the duration of crop financing.
The working capital needs of agri-products operations fluctuate during the year,
depending on the product, the country of origin, and the Company's inventory
position; however, the total working capital requirements of agri-products
remain relatively stable due to offsetting seasonal patterns. Working capital
needs of lumber and building products operations in Europe follow a pattern
similar to that of the construction industry, where the third quarter of the
fiscal year is typically sluggish due to winter weather and the holiday season.
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10
The Company finances its working capital needs with short-term lines of credit,
customer advances, and trade payables.
The Company and its subsidiaries currently have about $1.2 billion in
uncommitted lines of credit, of which about $900 million were unused at June 30,
1999, and available to support future seasonal working capital needs. In
December 1998, the Company renewed its $300 million revolving credit facility
which comprises two equal tranches. The facility is intended to be used as
support for a commercial paper program that provides flexibility in the
Company's short-term borrowings.
Long-term debt decreased by $22 million from $244 million at June 30, 1998,
to $222 million at June 30, 1999. The Company's total debt as a percentage of
total capitalization (including deferred taxes) has been reduced from 59% at the
end of fiscal year 1998 to approximately 55% at the end of fiscal year 1999.
Universal has the capacity to issue up to $100 million of debt from an existing
shelf registration, which it may utilize to manage its capital structure during
fiscal year 2000. The Company's debt ratings are investment grade, and its ratio
of long-term debt to long-term capitalization (including deferred taxes) is
approximately 27%.
The Company's capital expenditures are generally limited to those that add
value to the customer, replace obsolete equipment, increase efficiency, or
position the Company for future growth. Capital expenditures of approximately
$69 million in fiscal year 1999 included the completion of projects in Africa to
improve processing lines and facilities. The Company expects its capital
expenditures for fiscal year 2000 to remain at or near the levels of fiscal year
1999. At June 30, 1999, Universal had no material commitments for capital
expenditures.
In February 1999, Universal announced that its Board of Directors had
approved the expansion of its stock purchase program to up to $200 million
of the common stock of the Company. The purchases are carried out from time to
time on the open market or in privately negotiated transactions at prices not
exceeding prevailing market prices. The purchases have been and are expected to
be funded primarily from operating cash flow of the Company. At June 30, 1999,
Universal had approximately 32.1 million common shares outstanding and had
purchased a total of 3.43 million shares for $113 million pursuant to the
program.
The Company believes that its financial resources are adequate to support
its capital needs. Any excess cash flow from operations after dividends, capital
expenditures, and long-term debt payments will be available to reduce short-term
debt, fund expansion, purchase the Company's stock, or otherwise enhance
shareholder value.
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11
RESULTS OF OPERATIONS
FISCAL YEAR 1999 COMPARED TO 1998
'Sales and other operating revenues' in fiscal year 1999 were $4.0 billion
compared to $4.3 billion in 1998, a drop of $282 million or almost 7%. A decline
in tobacco revenues of approximately $250 million was due to a combination of
lower prices and volumes and the Company's oriental tobacco sales being
conducted by a minority-held joint venture in the current year. Lumber and
building product revenues were down slightly to $548 million, while a decline of
$31 million in revenues of the agri-products operations reflected primarily
lower volumes of tea.
'Operating income' in fiscal year 1999 was $255 million compared to $278
million in fiscal year 1998, a decline of almost 9%. Tobacco operating profits
were down $31 million or 12% in fiscal year 1999. Oversupply of tobacco leaf and
unsettled world market conditions for tobacco created a difficult operating
environment in 1999. Tobacco results suffered due to this imbalance and the
adverse effects of weather in certain areas of the world, quality problems in
Argentina, shipment delays in the Company's oriental tobacco joint venture, and
lower dark air-cured tobacco volumes. The Company closed several processing
facilities in the United States during the current fiscal year. Costs related to
the closures were not material to operating results. Operating profits for the
Company's lumber and building products segment were $24 million in fiscal year
1999, an increase of $4 million compared to the prior year. Improved market
conditions and higher prices for plywood, softwood and hardwood had a positive
impact on the current year's results. Operating profits of the agri-products
segment in fiscal year 1999 were down slightly due to the Company's sale of an
investment in a spice joint venture in fiscal year 1998, which generated a gain
of $17 million before taxes. On a comparable basis, excluding the spice
operations in fiscal year 1998, the operating income of the agri-products
segment would have been slightly higher in fiscal year 1999.
'Selling, general and administrative expenses' were down less than 3% to
$356 million in 1999 primarily due to the reduced levels of tobacco shipments.
The reduction in interest expense in fiscal year 1999 reflects lower interest
rates and reduced borrowing levels due to lower tobacco prices. In fiscal year
1999, the Company's consolidated income tax rate was almost 36%. The reduction
in the effective tax rate compared to last year was due to the mix of foreign
and domestic earnings plus the realization of tax benefits.
FISCAL YEAR 1998 COMPARED TO 1997
'Sales and other operating revenues' for fiscal year 1998 were $4.3
billion, an increase of 4% compared to 1997. Tobacco revenues were up $165
million or 5% principally due to increased sales volumes. Agri-product revenues
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12
were up $56 million or 11% on improved tea market conditions. These gains were
partially offset by a decline in lumber and building product revenues of
approximately $46 million. Lumber and building product revenues were adversely
affected by price declines for softwood, hardwood and plywood, and the strength
of the U.S. dollar which appreciated, on average, approximately 14% against the
Dutch guilder during the year.
'Operating income' improved $42 million in 1998, or almost 18%. Tobacco
operating profits in fiscal year 1998 of $272 million increased by $53 million
or 24%. The majority of the growth in tobacco operating profits was due to
higher volumes and improved margins. In addition, tobacco operations benefited
from a lower cost structure resulting from the Company's restructuring efforts
in prior years and an increase in dark tobacco volumes because of higher demand
from cigar manufacturers. In accordance with its normal valuation procedures, in
the fourth quarter of fiscal year 1998 the Company recorded in aggregate $11
million of charges for tobacco inventory adjustments, none of which was
individually significant. An improvement in agri-products operating profits was
more than offset by a decline in operating profits from lumber and building
products. The improvement in agri-products operating profits of more than $4
million was due principally to tea operations, which experienced a 37% increase
in revenues in a strong market. Lumber and building products operating results
suffered from the aforementioned impact of exchange rates plus a squeeze on
margins resulting from simultaneous declines in softwood, hardwood and plywood
prices.
'Selling, general and administrative expenses' for fiscal year 1998 were up
approximately $49 million, reflecting the higher volume of tobacco handled in
the fiscal year. The increase in "Equity in pretax earnings of unconsolidated
affiliates" was primarily due to the aforementioned improved market conditions
for cigar tobacco leaf. Pretax income in fiscal year 1998 included a gain of $17
million from the sale of an investment in a spice joint venture.
OTHER INFORMATION REGARDING TRENDS AND MANAGEMENT'S ACTIONS
For the second consecutive year, worldwide leaf supplies outpaced demand.
Customers in Asia and the former Soviet Union continued to purchase at reduced
levels due to the economic and financial woes within those markets. In the
United States, the landmark settlement of lawsuits against the cigarette
manufacturers resulted in increased cigarette prices and a significant drop in
cigarette sales. Worldwide tobacco consumption dropped in the current year due
to these difficulties in the United States, Asia, and the former Soviet Union.
Uncommitted tobacco inventory levels in the industry are relatively high and
continue to put pressure on prices and margins. The Company's uncommitted
inventory at June 30, 1999, was relatively low, constituting about 8% of the
total estimated worldwide uncommitted inventory levels at that time. While
management believes the adjustment process necessary to bring world leaf supply
and demand into balance is underway, world tobacco markets continue to be
difficult. Excess stocks held by others continue to overhang markets; there is a
large Brazilian crop to be absorbed; the speed of economic recovery in Asia and
its consequent impact on product and leaf markets is not very clear; and the
political and legal situation in the United States remains uncertain.
Prior to the current year, worldwide tobacco consumption had grown on
average about 1% annually over the last 10 years. The American-blend cigarette
is expected to continue to be the fastest growing segment with the multinational
manufacturers expanding their market share. Although this bodes well for the
long-term viability of the tobacco leaf industry, on a year-to-year basis, the
Company will be susceptible to fluctuations in demand as manufacturers adjust
inventories or respond to the cigarette market. In the current year, the slow
down in the growth of cigar consumption continued. Supply now exceeds demand for
binder and filler tobaccos in certain markets. The supply of good quality
wrapper was limited by poor weather conditions in key growing areas.
An important trend in the tobacco industry has been consolidation among
manufacturers and among leaf tobacco merchants. This trend is expected to
continue as further privatization of state monopolies occurs, providing
opportunities for acquisitions by international manufacturers. This
concentration should intensify the competition for market share within the
industry. A key success factor for leaf dealers in the future will be to provide
customers with the quality of leaf and the level of service they desire at the
lowest cost possible.
As of year end, the Company was obligated to sell its interest in a tobacco
joint venture. Universal's share of the venture's income was the majority of the
Company's "Equity in pretax earnings of unconsolidated affiliates" during each
of the last three years. Management estimates that it will recognize a modest
gain on the sale during the first quarter of its fiscal year 2000.
The possible effects of regulatory factors and industry litigation,
particularly in the United States, are more fully described in "Factors That May
Affect Future Results" below.
The Company has a significant presence in the U.S. market, where the
outlook for tobacco production is uncertain. For a number of years, U.S. leaf
has not been price competitive in world markets. The situation has reduced
exports, and that reduction, combined with declining purchases of U.S.
manufacturers and the buildup of leaf inventories in the U.S. Stabilization
Cooperatives, has adversely affected the amount of U.S. tobacco that can be
produced and sold in the United States. Domestic leaf purchases appear likely to
continue to
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13
decline because of lower cigarette consumption. If not corrected through federal
tobacco program reforms and reduced support prices, the competitive position of
U.S. leaf is unlikely to improve. Management believes that the total U.S. crop
in fiscal year 2000 will experience a further decline, but notes that the
Company is well positioned to acquire leaf tobacco from many sources in world
markets if U.S. supplies (including stocks held by the U.S. Stabilization
Cooperatives) should be inadequate to meet customer requirements. The Company
has responded to the decrease in demand for, and production of, U.S. tobacco by
closing certain plants, consolidating operations and reducing personnel.
YEAR 2000
There has been increasing public awareness and attention paid to the year 2000
(or "Y2K") problem, which stems from the inability of certain computerized
devices (hardware, software and equipment) to process year-dates properly after
1999 (in addition to related problems processing leap years and other dates).
Affected devices may fail or malfunction unless repaired or replaced. Although
the actual magnitude and effect of the issue cannot be reasonably determined in
advance, the Company has given it high priority. In 1996, the Company began an
analysis of the possible implications to the Company of the year 2000 problem
and the development of a plan to prevent the problem from adversely affecting
its operations.
The plan as adopted and refined by the Company can be divided into two
principal areas:
(1) RESOLUTION OF THE INTERNAL ASPECTS OF THE YEAR 2000 PROBLEM. This area
includes the effects of the year 2000 problem on the Company's technology,
including computer hardware and software systems, as well as computerized
equipment containing programmable logic controllers or other embedded chips
("PLCs" or "chips"). The Company's internal technology year 2000 plan includes:
(i) locating, listing and prioritizing the specific technology that is
potentially subject to the year 2000 problem (referred to as the "inventory"
phase); (ii) assessing the actual exposure of such technology to the year 2000
problem by inquiry, research, testing and other means (the "assessment" phase);
(iii) selecting the method necessary to resolve the year 2000 problems that were
identified, including replacement, upgrade, repair or abandonment, and
implementing the selected resolution method (the "remediation" phase); and (iv)
testing the remediated or converted technology to determine the efficacy of the
resolutions (the "testing" phase).
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14
(2) DETERMINATION AND CONTROL OF THE EXTERNAL ASPECTS OF THE YEAR 2000 PROBLEM.
This area includes (i) assessing the foreign and domestic risk posed by possible
business interruption or production difficulties affecting important customers
and suppliers of goods, services and essential utilities due to year 2000
problems affecting their technology or business, and (ii) developing contingency
plans to address failures by external parties to remediate fully any year 2000
problems that are material to the Company. Assessment of external parties is
accomplished by written and verbal inquiry, and by research to the extent that
reliable information is available.
To date, the Company has substantially completed the internal and external
aspects of the plan. With regard to internal information technology, the
Company's business units have substantially completed the remediation and
testing phases of its mission critical computer hardware and software systems
and have implemented the appropriate year 2000 resolutions. The business units
have also substantially completed assessment and remediation of its PLC's, phone
systems and other mission critical automated equipment.
The Company's Year 2000 Task Force will continue to visit its material
business units to review testing results and perform re-tests as warranted of
remediated or converted hardware and software systems, prioritized based on the
importance of the technology. These visits also include reviews of external
party risks and contingency plans.
The Company has assessed its internal operational exposure to the failure
of PLCs. Information provided by the manufacturers of the PLC's embedded within
the Company's machinery and equipment indicates that there do not appear to be
any PLC's that will cause material year 2000 problems. The Company recently
hired a consultant to test a sample of the PLC's on the Company's processing
equipment to confirm manufacturers' assertions regarding the absence of material
year 2000 problems. The consultants did not discover any significant year 2000
problems in any PLC's on the tested equipment. Testing of PLCs is not a routine
practice, and there can be no assurances that the tests conducted on behalf of
the Company are completely reliable or that the Company's testing sample of
processing machinery was a truly representative sample. The Company does not
intend to conduct any other tests of PLC's.
The Company's initial evaluation of external parties has been performed and
will continue to be evaluated throughout the remainder of calendar year 1999.
Determining the year 2000 readiness of external parties requires collection and
appraisal of voluntary statements made or provided by those parties, if
available, together with independent factual research. Although the Company has
taken, and will continue to take, reasonable efforts to gather information to
determine the readiness of external parties, often such information is not
provided voluntarily, is not otherwise available, or may not be reliable.
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15
In assessing the risks to the Company's business arising from the year 2000
problem, the Company has considered the fact that certain of its significant
customers and suppliers are located in foreign countries where the awareness of
the year 2000 problem and remediation efforts are behind comparable awareness
and remediation efforts in the United States, and that these entities may not be
prepared for the year 2000 problem on January 1, 2000. In the event these
significant entities fail to timely address the year 2000 problem, the Company
could suffer disruption of its normal business operations for a period of time
after January 1, 2000. The Company cannot predict the extent to which any such
disruption may adversely affect the Company's business, financial condition or
results of operations.
In addition, the Company is subject to operational risks relating to the
readiness of foreign and domestic public utilities, transportation facilities,
financial services providers and government-operated services. The loss of
services from one or more of these entities could interrupt or disrupt business
unit operations. Furthermore, with respect to certain fundamental services such
as electricity and telecommunications, it is impractical to develop contingency
plans (such as alternative power generation or telecommunication methods) to
mitigate the potential adverse effects. The year 2000 readiness of external
parties is substantially beyond the Company's knowledge and control, and there
can be no assurances that the Company will not be adversely affected by the
failure of an external party to adequately address the year 2000 problem.
The Company's business units have developed individual contingency plans to
mitigate the risks associated with the year 2000 readiness of external parties.
Each business unit is responsible for monitoring their local environment and
modifying their plans accordingly. During the remainder of 1999, the Company's
Year 2000 Task Force will continue to monitor and provide guidance to the
business units with regard to their respective contingency plans. In general,
the Company's business units' contingency plans relate to the stockpiling of
packing materials, the timing of shipments to minimize the quantity of tobacco
in transit during the date change, and the managing of cash to minimize the
transfer of funds at the date change.
The Company currently estimates that the total costs for addressing the
year 2000 problem will be approximately $8 million, which includes approximately
$3 million in scheduled software upgrades that were accelerated in connection
with the plan. The balance of the estimate is the cost of consultants and
employees assigned to implement the plan. These amounts do not include estimated
costs associated with the implementation of any contingency plans. The costs
associated with preparing for the year 2000 problem are expensed as incurred and
are being funded with cash from operations. As of June 30, 1999, the Company had
spent approximately $7 million. The Company does not expect the total cost of
addressing the year 2000 problem with respect to its internal technology to be
material to its consolidated financial condition or results of operations.
<PAGE>
16
THE CONVERSION TO THE EURO CURRENCY
On January 1, 1999, eleven of the European Union member countries began the
transition from their national currencies to the "euro". The euro will become
the single currency for the members of the European Monetary Union. In the
current phase, the permanent rates of exchange between the members' national
currency and the euro were established, and monetary, capital, foreign exchange,
and interbank markets were converted to the euro. National currencies continue
to exist as legal tender and are used in commercial transactions. By January
2002, euro notes and coins will be issued, and by July 2002, the respective
national currencies will be withdrawn. The Company's operating subsidiaries
affected by the euro conversion have established plans to address the related
operating and information technology concerns. The initial phase of transition
to the euro did not, nor does the Company anticipate that the future phases
will, have a material adverse effect on its financial condition or results of
operations.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The foregoing discussion contains certain forward-looking statements, which may
be identified by phrases such as "the Company expects" or words of similar
effect. In addition, the Company may publish, from time to time, forward-looking
statements relating to such matters as anticipated financial performance,
business prospects and similar matters. The following important factors, among
other things, in some cases have affected, and in the future could affect, the
Company's actual results and could cause the Company's actual results for fiscal
year 2000 and any interim period to differ materially from those expressed or
implied in any forward-looking statements made by, or on behalf of, the Company.
The Company assumes no duty to update any of the statements in this report.
TOBACCO BUSINESSES
OPERATING FACTORS
Universal's financial results are affected by a number of factors that directly
or indirectly impact the tobacco operations of the Company's business. Operating
factors that may affect the Company's results of operations include:
Competition; reliance on significant customers
The leaf tobacco industry is highly competitive. Competition among leaf tobacco
merchants is based primarily on the price charged for products and services as
well as the firm's ability to meet customer specifications in the buying,
processing and financing of tobacco. In addition, there is competition in all
countries to buy the available tobacco from suppliers.
There are only three major global competitors in the leaf tobacco industry,
and they are dependent upon a few large tobacco manufacturing customers. The
number of manufacturers has declined in recent years due to consolidation. The
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17
loss of, or a substantial reduction in the services provided to, any large or
significant customer would have a material adverse effect on the Company's
results of operations. Universal has long-term contracts (which under certain
circumstances may be amended or terminated) with some of these customers, and,
while there are no formal continuing contracts with the others, the Company has
done business with each of its major customers for over 40 years.
Market balance
Universal's financial results can be significantly affected by the overall
balance of worldwide supply and demand for leaf tobacco. Customers purchase
tobacco based upon their expectations of future requirements, and those
expectations can change from time to time depending upon internal and external
factors affecting their business. Trends in the global consumption of cigarettes
and growth of American-blend cigarettes, as well as trends in cigar sales,
influence manufacturers' expectations and thus their demand for leaf tobacco.
The total supply of tobacco at any given time is a function of current tobacco
production and the volumes of uncommitted stocks of processed tobacco from prior
years' production. Production of tobacco in a given year may be significantly
affected by the amount of tobacco planted by farmers throughout the world,
fluctuations in the weather in geographically dispersed regions, and crop
disease. Any material imbalance in the supply and demand for tobacco may impact
the Company's results of operations.
Methods of purchasing tobacco
The Company purchases leaf tobacco from farmers, growers and other suppliers
through public auction and privately negotiated contract purchases. In a number
of countries, including Brazil, Guatemala, Hungary, Italy, Mexico and Tanzania,
where the Company contracts directly with tobacco farmers, in some cases before
harvest, the Company takes the risk that the delivered quality and quantity will
meet market requirements. Company affiliates also have dark tobacco growing
operations in Indonesia.
During the past year there were proposals to replace the auction system in the
United States with contract buying directly from the farmers. Management expects
such proposals to continue to arise. The Company would not expect implementation
of such changes to have a material adverse effect on the results of operations.
Timing of customer shipments
The Company recognizes sales and revenue from tobacco operations at the time
that title to the tobacco and risk of loss passes to the customer. Individual
shipments may be large and since the customer typically specifies shipping
dates, the Company's comparative financial results may vary significantly
between reporting periods.
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18
GOVERNMENTAL FACTORS
The tobacco business is heavily regulated by federal, state and local
governments in the United States and by foreign governments in many
jurisdictions where the Company operates. Governmental factors that may affect
the Company's results of operations include:
Government efforts to reduce tobacco consumption
The U.S. government has taken or proposed actions that may have the effect of
reducing U.S. consumption of tobacco products. These activities have included:
(1) the U.S. Environmental Protection Agency's decision to classify
environmental tobacco smoke as a "Group A" (known human) carcinogen, which
action has been ruled unlawful by a Federal District Court decision that has
been appealed; (2) restrictions on the use of tobacco products in public places
and places of employment including a proposal by the U.S. Occupational Safety
and Health Administration to severely restrict smoking in the work place; (3)
proposals by the U.S. Food and Drug Administration ("FDA") to regulate nicotine
as a drug and sharply restrict cigarette advertising and promotion, recently
determined to be outside the jurisdiction of the FDA; however, the case is
currently scheduled to be reviewed by the U.S. Supreme Court; (4) proposals to
increase the U.S. excise tax on cigarettes; and (5) the policy of the U.S.
government to link certain federal grants to the enforcement of state laws
restricting the sale of tobacco products. In addition, there have been several
bills introduced in previous sessions of Congress that, if they had been enacted
into law, would have settled certain lawsuits filed against tobacco
manufacturers and limited or capped damages in future lawsuits; provided for
payments by the manufacturers to federal and state governments; imposed further
restrictions on the sale, advertising and promotion of tobacco products; and
imposed regulatory frameworks on tobacco manufacturers operating in the United
States. Numerous other legislative and regulatory anti-smoking measures have
also been proposed at the federal, state and local levels.
In addition, a number of foreign governments have also taken or proposed
steps to restrict or prohibit cigarette advertising and promotion, to increase
taxes on cigarettes and to discourage cigarette smoking. In Japan, a government
panel recently proposed a campaign to cut the nation's tobacco consumption in
half by 2010. In some cases, such restrictions are more onerous than those in
the United States.
The Company cannot predict the extent to which government efforts to reduce
tobacco consumption might affect the Company's business. Although the long-term
trend in the United States generally has been toward decreased consumption of
cigarettes, cigar sales have increased in recent years and the long-term trend
of worldwide cigarette consumption, despite a decrease in the current year, has
been one of slight
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19
growth. However, a significant decrease in overall worldwide tobacco consumption
brought about by existing or future governmental laws and regulations would
reduce demand for the Company's products and services and could have a material
adverse effect on the Company's results of operations.
Political uncertainties in foreign tobacco operations
The Company's international operations are subject to uncertainties and risks
relating to the political stability or instability of certain foreign
governments, principally in developing and emerging markets, and to the effects
of changes in the trade policies and economic regulations of foreign
governments. These uncertainties and risks include the effects of war,
insurrection, expropriation or nationalization of assets, undeveloped or
antiquated commercial laws, subsidies for local tobacco concerns, licenses to
conduct business in foreign jurisdictions, import and export restrictions, the
imposition of excise and other taxes on tobacco, monetary and exchange controls,
inflationary economies, and restrictions on repatriation of earnings or proceeds
from liquidated assets of foreign subsidiaries. In the past, the Company has
experienced significant year-to-year fluctuations in earnings due to changes in
the Brazilian government's economic policies. The Company has substantial
capital investments in South America and Africa and the performance of its
operations in these regions can materially affect the Company's earnings from
tobacco operations.
- -=
United States trade policies
The U.S. tobacco price support system is an industry-funded program that is
administered by the U.S. government. The effect of the price support system has
been to increase the cost of domestic tobacco relative to most foreign tobacco,
resulting in a decline in exports of domestic tobacco. In 1995, Congress
repealed certain domestic content legislation that had required that all
domestically manufactured cigarettes contain at least 75% domestically grown
tobacco and replaced it with a less restrictive tariff rate import quota system,
which was also designed to assist domestic tobacco growers by limiting imports.
It is not possible to predict the extent to which future trade policies or other
governmental activities might affect the Company's business.
Tax matters
The Company, through its subsidiaries, is subject to the tax laws of many
jurisdictions, and from time to time contests assessments of taxes due. Changes
in tax laws or the interpretation of tax laws can affect the Company's earnings
as can the resolution of various pending and contested tax issues.
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20
Health issues; public sentiment; industry litigation
Reports and speculation with respect to the alleged harmful physical effects of
cigarette smoking have been publicized for many years and, together with
decreased social acceptance of smoking and increased pressure from anti-smoking
groups, have had an ongoing adverse effect on sales of tobacco products. A
significant decrease in global sales of tobacco products brought about by health
concerns, decreased social acceptance or other factors would reduce demand for
the Company's products and services and could have a material adverse effect on
the Company's results of operations.
During the past few years, certain U.S. tobacco product manufacturers
entered into agreements with states and various U.S. jurisdictions settling
asserted and unasserted healthcare cost recovery and other claims. The
settlements provide for billions of dollars in annual payments from those
manufacturers and place numerous restrictions on their conduct of business
operations, including restrictions on the advertising and marketing of
cigarettes, all of which could have the effect of reducing tobacco consumption
in the United States. Lower consumption of tobacco products could reduce demand
for the Company's products and services and could have a material adverse effect
on the Company's operating results.
In September of 1999, the U.S. government filed a
lawsuit against tobacco product manufacturers to recover healthcare costs,
similar to the suits settled by the states. In addition, there are numerous
smoking and health cases filed by individual plaintiffs or on behalf of putative
classes pending in the United States and other countries against tobacco product
manufacturers. It is not possible to predict the outcome of such litigation.
However, future judgments or settlements could have a detrimental effect on the
consumption of tobacco products and, therefore, could have a material adverse
effect on the Company's operating results.
FINANCIAL FACTORS
Financial factors that may affect the Company's results of operations include:
Extensions of credit
Although the Company's credit experience has been excellent and extensions of
credit to customers are evaluated carefully, a significant delay in payment or
write-off of amounts due the Company could adversely affect its results. In
addition, crop advances to farmers are generally secured by the farmer's
agreement to deliver green tobacco; in the event of crop failure, recovery of
advances could be delayed until deliveries of future crops. Funds held by
subsidiaries are generally invested in local banks or loaned to other
subsidiaries. To reduce credit risk, investment limits are established with each
bank according to the Company's evaluation of credit standing.
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21
Fluctuations in foreign currency exchange rates
The international tobacco trade generally is conducted in U.S. dollars, thereby
limiting foreign exchange risk to that which is related to production costs and
overhead in the source country. Because there is no forward foreign exchange
market in many of the Company's major countries of tobacco origin, the Company
manages its foreign exchange risk by matching funding for inventory purchases
with the currency of sale and by minimizing the net investment in these
countries.
Interest rates
Interest rate risk in the Company's tobacco operations is limited because
customers usually pre-finance purchases or pay market rates of interest for
inventory purchased on their order. However, since interest expense is recorded
as a period cost, the Company may experience earnings fluctuations on a
short-term basis if customers delay shipments of tobacco.
NON-TOBACCO BUSINESSES
The Company's agri-products and lumber and building products businesses, which
are based primarily in the United States and the Netherlands, do business in a
number of foreign countries. These operations enter into forward exchange
contracts to hedge firm purchase and sales commitments in foreign currencies
(principally Euros, Dutch guilders, U.S. dollars, German Marks, Swedish Kronas,
and pound sterling). The terms of currency hedges is generally from one to six
months. Hedging activity is not material.
The Company's lumber and building products operations are based in the
Netherlands, and their reported earnings are affected by the translation of the
Dutch guilder into the U.S. dollar. This business is seasonal to the extent that
winter weather may temporarily interrupt the operations of its customers in the
building industry. The business is also subject to other normal market and
operational risks associated with lumber operations centered in Europe,
including economic conditions in the countries where the Company is located, the
prices of lumber products, and related trends in the building and construction
industry.
The agri-products business is affected by operating and other factors that
are similar to those that affect the Company's tobacco operations, including
crop risks, market balance, and governmental factors such as political
uncertainties in countries of crop origin.
<PAGE>
22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item, to the extent applicable, is included in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" set forth elsewhere in this report. See also Note 1 to Consolidated
Financial Statements for additional information regarding derivative financial
instruments.
<PAGE>
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
(In thousands of dollars, except per share data)
<S> <C>
Sales and other operating revenues $4,004,903 $4,287,204 $4,112,675
Costs and expenses
Cost of goods sold 3,394,419 3,644,100 3,559,647
Selling, general and administrative expenses 355,928 364,710 316,201
-------------------------------------------
Operating income 254,556 278,394 236,827
Equity in pretax earnings of unconsolidated affiliates 14,066 16,901 11,864
Gain on sale of investment 16,718
Interest expense 56,837 63,974 64,886
-------------------------------------------
Income before income taxes and other items 211,785 248,039 183,805
Income taxes 75,963 98,659 73,945
Minority interests 8,546 8,122 8,987
-------------------------------------------
Net income $ 127,276 $ 141,258 $ 100,873
-------------------------------------------
Net income:
Per common share $ 3.81 $ 4.01 $ 2.88
Per diluted common share $ 3.80 $ 3.99 $ 2.87
-------------------------------------------
Weighted average common shares outstanding 33,437 35,190 35,076
Dilutive effect of stock options 40 198 131
-------------------------------------------
Average common shares outstanding, assuming dilution 33,477 35,388 35,207
-------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
24
<TABLE>
<CAPTION>
JUNE 30 1999 1998
- --------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C>
ASSETS
Current
Cash and cash equivalents $ 92,784 $ 79,835
Accounts receivable 326,055 392,821
Advances to suppliers 72,455 65,296
Accounts receivable--unconsolidated affiliates 17,707 49,343
Inventories--at lower of cost or market:
Tobacco 419,256 541,822
Lumber and building products 85,458 97,071
Agri-products 74,114 89,990
Other 33,218 33,162
Prepaid income taxes 20,993 18,347
Deferred income taxes 6,952 3,794
Other current assets 21,333 19,665
-----------------------
Total current assets 1,170,325 1,391,146
Property, plant and equipment--at cost
Land 29,743 29,951
Buildings 237,054 219,594
Machinery and equipment 491,201 466,177
-----------------------
757,998 715,722
Less accumulated depreciation 409,678 385,967
-----------------------
348,320 329,755
Other assets
Goodwill 117,871 120,889
Other intangibles 20,950 18,586
Investments in unconsolidated affiliates 95,491 87,052
Other noncurrent assets 70,166 51,074
-----------------------
304,478 277,601
-----------------------
$1,823,123 $1,998,502
- ---------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
25
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30 1999 1998
- -----------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current
Notes payable and overdrafts $ 497,399 $ 586,450
Accounts payable 235,310 252,318
Accounts payable--unconsolidated affiliates 14,186 17,116
Customer advances and deposits 82,432 125,311
Accrued compensation 24,291 24,706
Income taxes payable 15,836 27,693
Current portion of long-term obligations 29,046 28,784
--------------------------
Total current liabilities 898,500 1,062,378
Long-term obligations 221,545 244,080
Postretirement benefits other than pensions 42,981 44,535
Other long-term liabilities 45,474 40,909
Deferred income taxes 39,198 27,065
Minority interests 36,389 31,668
Shareholders' equity
Preferred stock, no par value, authorized 5,000,000 shares, none issued or
outstanding Common stock, no par value, authorized 100,000,000 shares,
issued and outstanding 32,090,550 shares (34,866,406 at June 30, 1998) 75,758 80,122
Retained earnings 510,123 508,137
Accumulated other comprehensive income (46,845) (40,392)
--------------------------
Total shareholders' equity 539,036 547,867
--------------------------
$ 1,823,123 $ 1,998,502
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
26
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 127,276 $ 141,258 $ 100,873
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 46,158 43,616 44,170
Amortization 6,604 7,455 7,400
Translation loss, net 2,689 1,739 2,392
Deferred taxes 13,986 14,439 22,892
Minority interests 8,546 8,122 8,987
Gain on sale of investment (16,718)
Equity in net income of unconsolidated affiliates (9,091) (10,102) (6,695)
Other (3,655) 3,061 3,309
-----------------------------------
192,513 192,870 183,328
Changes in operating assets and liabilities net of
effects from purchase of
businesses:
Accounts and notes receivable 69,969 (54,189) (126,379)
Inventories and other assets 145,422 (15,434) (130,509)
Income taxes (14,503) 1,248 (8,733)
Accounts payable and other accrued liabilities (60,971) 8,872 80,797
-----------------------------------
Net cash provided (used) by operating activities 332,430 133,367 (1,496)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (69,154) (96,720) (58,817)
Investment in unconsolidated affiliates (41,114)
Proceeds from sale of investment 29,065
Sales of property, plant and equipment 2,817 6,688 19,551
Other (11,500) (6,664) (2,671)
-----------------------------------
Net cash used in investing activities (77,837) (108,745) (41,937)
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance (repayment) of short-term debt, net (87,638) 30,137 51,247
Repayment of long-term debt (28,891) (30,241) (91,795)
Issuance of long-term debt 6,618 7,767 18,769
Dividends paid to minority shareholders (1,876) (7,493) (3,657)
Issuance of common stock 2,268 4,328 617
Purchases of common stock (93,026) (19,824)
Dividends paid (39,032) (38,390) (37,009)
-----------------------------------
Net cash used in financing activities (241,577) (53,716) (61,828)
-----------------------------------
Effect of exchange rate changes on cash (67) (141) (451)
-----------------------------------
Net increase (decrease) in cash and cash equivalents 12,949 (29,235) (105,712)
Cash and cash equivalents at beginning of year 79,835 109,070 214,782
-----------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 92,784 $ 79,835 $ 109,070
- --------------------------------------------------------------------------------------------------------------------
Supplemental information-cash paid:
Interest $ 57,387 $ 63,999 $ 69,672
Income taxes, net of refunds $ 85,033 $ 73,048 $ 63,348
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
27
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED JUNE 30, 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
(In thousands of dollars)
<S> <C>
COMMON STOCK:
Balance at beginning of year $ 80,122 $ 77,040 $ 76,053
Issuance of common stock and exercise
of stock options 2,268 4,328 987
Purchase of common stock (6,632) (1,246)
--------------------------------------------------------------------------------
Balance at end of year 75,758 80,122 77,040
--------------------------------------------------------------------------------
RETAINED EARNINGS:
Balance at beginning of year 508,137 424,298 360,273
Net income 127,276 $127,276 141,258 $141,258 100,873 $100,873
Cash dividends declared ($1.18 per share in
1999; $1.105 in 1998; $1.05 in 1997) (38,896) (38,841) (36,848)
Cost of common shares retired in excess of
stated capital amount (86,394) (18,578)
--------------------------------------------------------------------------------
Balance at end of year 510,123 508,137 424,298
--------------------------------------------------------------------------------
ACCUMULATED COMPREHENSIVE
INCOME:
Balance at beginning of year (40,392) (31,745) (19,021)
Translation adjustments for the year (9,928) (9,928) (13,298) (13,298) (20,068) (20,068)
Allocated income taxes 3,475 3,475 4,651 4,651 7,344 7,344
--------- --------- ----------
Total comprehensive income $120,823 $132,611 $ 88,149
--------------------------------------------------------------------------------
Balance at end of year (46,845) (40,392) (31,745)
--------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
AT END OF YEAR $539,036 $547,867 $469,593
- ---------------------------------------------------------------------------------------------------------------------------------
COMMON SHARES OUTSTANDING:
(In thousands of shares)
Balance at beginning of year 34,866 35,139 35,056
Issuance of common stock and exercise
of stock options 108 269 83
Purchase of common stock (2,883) (542)
--------------------------------------------------------------------------------
Balance at end of year 32,091 34,866 35,139
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
<PAGE>
28
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(All dollar amounts are in thousands, except as otherwise noted)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- -------------------------------------------------------------------------------
CONSOLIDATION
The financial statements include the accounts of all controlled domestic and
foreign subsidiaries. All material intercompany items and transactions have been
eliminated. The fiscal years of foreign subsidiaries generally end March 31 or
April 30 to facilitate timely reporting. The Company uses the equity method of
accounting for its investments in affiliates, which are owned 50% or less.
NET INCOME PER SHARE AND SHARE PURCHASE
The Company calculates earnings per share in accordance with Statement of
Financial Accounting Standard No. 128, "Earnings per Share." The Company uses
the weighted average number of common shares outstanding during each period to
compute basic earnings per common share. Diluted earnings per share is computed
using the weighted average number of common shares and dilutive potential common
shares outstanding. Dilutive potential common shares are outstanding dilutive
stock options that are assumed to be exercised.
The Board of Directors of the Company approved a $100 million stock
purchase program on May 6, 1998. The program was increased by $100 million on
February 4, 1999. The Company had purchased 542,000 shares at a cost of $19,824
by June 30, 1998, and an aggregate of 3,425,161 shares at a total cost of
$112,850 by June 30, 1999.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents.
INVENTORIES
Inventories of tobacco and agri-products are valued at the lower of specific
cost or market. Lumber and building products inventory is valued at the lower of
cost or market, with cost determined under the first-in, first-out (FIFO)
method. All other inventories are valued principally at lower of average cost or
market.
PROPERTY, PLANT AND EQUIPMENT
Depreciation of plant and equipment is based upon historical cost and the
estimated useful lives of the assets. Depreciation of properties used in tobacco
operations is calculated using both the straight line and declining balance
methods, while lumber and building products and agri-products utilize the
straight line method. Buildings include tobacco and agri-product processing and
blending facilities, lumber outlets, offices and warehouses. Machinery and
equipment represent processing and packing machinery and transportation, office
and computer equipment. Estimated useful lives range as follows: buildings-15 to
40 years; processing and packing machinery-3 to 11 years; transportation
equipment-3 to 10 years; and office and computer equipment-3 to 10 years.
GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles include principally the excess of the purchase
price of acquired companies over the net assets. Goodwill and other intangibles
are generally amortized using the straight-line method over periods not
exceeding 40 years. Goodwill and other intangible assets are periodically
reviewed for impairment, including a determination of whether events or
circumstances have changed that may indicate that an impairment of value exists,
based upon an assessment of future operations. Accumulated amortization at June
30, 1999 and 1998, was $42.1 and $35.5 million, respectively.
INCOME TAXES
The Company provides deferred income taxes on temporary differences arising from
employee benefit accruals, depreciation, deferred compensation, undistributed
earnings of unconsolidated affiliates, and undistributed earnings of foreign
subsidiaries not permanently reinvested. At June 30, 1999, the cumulative amount
of permanently reinvested earnings of foreign subsidiaries on which no provision
for U.S. income taxes had been made was $72.4 million.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The fair values of the Company's long-term obligations have been estimated using
discounted cash flow analyses based on the Company's current incremental
borrowing rates for similar types of borrowing arrangements. The carrying amount
of all other assets and liabilities that qualify as financial instruments,
approximates fair value.
DERIVATIVE FINANCIAL INSTRUMENTS
Forward foreign currency exchange contracts are used by the Company in the
management of certain foreign currency exposures. The Company does not enter
into contracts for trading purposes. None of these contracts contain multiplier
or leverage features. The Company enters into such contracts only with financial
institutions of good standing and the total credit exposure related to
non-performance by those institutions is not material to the operations of the
Company. Realized and unrealized gains and losses on the Company's foreign
currency contracts that are designated and effective as hedges are deferred and
recognized as a component of the underlying transactions when they occur.
Realized gains or losses from matured and terminated hedge contracts are
recorded in other assets or liabilities until the underlying hedge transaction
is consummated. Realized and unrealized gains or losses on hedge contracts
relating to transactions that are not subsequently expected to occur are
recognized in results currently. Contracts used to manage foreign currency risks
are not material.
TRANSLATION OF FOREIGN CURRENCIES
The financial statements of foreign subsidiaries, for which the local currency
is the functional currency, are translated into U.S. dollars using exchange
rates in effect at period end for assets and liabilities and average exchange
rates during each reporting period for results of operations. Adjustments
resulting from translation of financial statements are reflected as a separate
component of comprehensive income.
The financial statements of foreign subsidiaries, for which the U.S. dollar
is the functional currency and which have certain transactions denominated in a
local currency, are remeasured
<PAGE>
29
as if the functional currency were the U.S. dollar. The remeasurement of local
currencies into U.S. dollars creates translation adjustments that are included
in net income. Exchange losses in 1999, 1998, and 1997 resulting from foreign
currency transactions were $4.8, $3.0 and $3.1 million, respectively (including
$2.7, $1.7 and $2.4 million resulting from remeasurement) and are included in
the respective statements of income.
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
ACCOUNTING PRONOUNCEMENTS
In 1998, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ("SFAS 133"), "Accounting for Derivative Instruments and
Hedging Activities." The statement will require the Company to recognize all
derivatives on the balance sheet at fair value. This statement is effective for
the Company's fiscal year starting July 1, 2000, and is not expected to
materially affect the consolidated financial position or results of operations.
RECLASSIFICATIONS
Certain amounts in prior years' statements have been reclassified to be reported
on a consistent basis with the current year's presentation.
NOTE 2. GAIN ON SALE OF INVESTMENT
- --------------------------------------------------------------------------------
In 1998, the Company sold its minority interest in a Dutch spice joint venture
to the majority owner for total proceeds of $29.1 million and a gain of $16.7
million before taxes.
NOTE 3. INCOME TAXES
- --------------------------------------------------------------------------------
Income taxes consist of the following:
YEARS ENDED JUNE 30, 1999 1998 1997
- ---------------------------------------------------------------
Current
United States $ (8,096) $17,854 $ 5,300
State and local 1,248 3,482 1,620
Foreign 68,511 59,350 42,156
---------------------------------------
61,663 80,686 49,076
Deferred
United States 10,603 17,332 19,025
State and local 538 887 (180)
Foreign 3,159 (246) 6,024
---------------------------------------
14,300 17,973 24,869
---------------------------------------
Total $75,963 $98,659 $73,945
- ---------------------------------------------------------------
A reconciliation of the statutory U.S. federal rate to the effective income tax
rate is as follows:
YEARS ENDED JUNE 30, 1999 1998 1997
- -----------------------------------------------------------
Tax at statutory rate 35.0% 35.0% 35.0%
State income taxes,
net of federal benefit 0.5 1.0 0.5
Income taxed at other
than the U.S. rate 0.4 3.8 4.4
Other, net 0.3
--------------------------------
Total 35.9% 39.8% 40.2%
- -----------------------------------------------------------
Significant components of deferred tax liabilities and assets were as follows:
AT JUNE 30, 1999 1998
- --------------------------------------------------------------------------------
Liabilities
Undistributed earnings $45,916 $37,941
Tax over book depreciation 10,603 13,441
Goodwill 9,254 7,762
All other 12,137 11,206
--------------------
Total deferred tax liabilities $77,910 $70,350
--------------------
Assets
Employee benefit plans $14,999 $17,553
Foreign currency translation 19,147 14,854
Deferred compensation 6,272 7,053
All other 5,246 7,619
--------------------
Total deferred tax assets $45,664 $47,079
--------------------
The components of income before income taxes and other items consist of the
following:
YEARS ENDED JUNE 30, 1999 1998 1997
- -------------------------------------------------------
United States $ (3,758) $ 43,987 $ 41,780
Foreign 215,543 204,052 142,025
-------------------------------
Total $211,785 $ 248,039 $ 183,805
- -------------------------------------------------------
<PAGE>
30
NOTE 4. SHORT-TERM CREDIT FACILITIES
- --------------------------------------------------------------------------------
The Company maintains lines of credit in the United States and in a number of
foreign countries. Foreign borrowings are generally in the form of overdraft
facilities at rates competitive in the countries in which the Company operates.
Generally, each foreign line is available only for borrowings related to
operations of a specific country. At June 30, 1999, unused, uncommitted lines of
credit were approximately $900 million. The weighted average interest rate on
short-term borrowings outstanding as of June 30, 1999 and 1998, was
approximately 5.7% and 6.9%, respectively.
NOTE 5. LONG-TERM OBLIGATIONS
- --------------------------------------------------------------------------------
AT JUNE 30, 1999 1998
- --------------------------------------------------------------------------------
6.14% Senior notes payable in
five annual installments from
1996 to 2000 $ 40,000 $ 60,000
9.25% Medium-term notes
due February 2001 100,000 100,000
6.5% Notes due February 2006 100,000 100,000
Other notes due through 1999
at various interest rates
ranging from 5% to 11% 8,991 10,989
Revenue bonds due through
2004 at various interest
rates below prime 1,600 1,875
---------------------
250,591 272,864
Less current portion (29,046) (28,784)
---------------------
Long-term obligations $221,545 $244,080
- ---------------------------------------------------------------
The fair value of the Company's long-term obligations was approximately $223
million at June 30, 1999, and $255 million at June 30, 1998. Certain notes are
denominated in local currencies of foreign subsidiaries.
The Company maintains a $300 million revolving credit facility issued in two
tranches of $150 million each. The facility is used to support short-term
borrowings, including the issuance of commercial paper. Under its terms, each
facility may be extended for an additional year on its anniversary date,
December 18.
Under certain of the debt agreements, the Company must meet financial
covenants relating to minimum tangible net worth and restrictions on the
issuance of long-term debt. The Company was in compliance with all such
covenants at June 30, 1999 and 1998.
Other information:
Maturities of long-term debt for the fiscal years succeeding June 30, 1999, are
as follows: 2000--$29,046; 2001--$120,478; 2002--$377; 2003--$335; 2004--$355;
2005 and after--$100,000.
<PAGE>
31
NOTE 6. PENSION PLANS AND POSTRETIREMENT BENEFITS
- --------------------------------------------------------------------------------
The Company and its subsidiaries have several defined benefit pension plans
covering United States and foreign salaried employees and certain other employee
groups. These plans provide retirement benefits based primarily on employee
compensation and years of service. The Company's funding policy for domestic
plans is to make contributions currently to the extent deductible under existing
tax laws and regulations, subject to the full-funding limits of the Employee
Retirement Income Security Act of 1974. Foreign plans are funded in accordance
with local practices. Domestic and foreign plan assets consist primarily of
fixed income securities and equity investments. Prior service costs are
amortized equally over the average remaining service period of employees.
The Company provides postretirement health and life insurance benefits for
eligible U.S. employees attaining specific age and service requirements. The
health plan is funded by the Company as the costs of the benefits are incurred
and contains cost-sharing features such as deductibles and coinsurance. The
Company funds the life insurance plan with deposits to a retired life reserve
account held by an insurance company. The Company reserves the right to amend or
discontinue the plans at any time.
Assumptions used for financial reporting purposes to compute net benefit
income or cost and benefit obligations, and the components of net periodic
benefit income or cost, are as follows:
<TABLE>
<CAPTION>
FOREIGN PENSION BENEFITS DOMESTIC PENSION BENEFITS OTHER POSTRETIREMENT BENEFITS
(APRIL 30 MEASUREMENT DATE) (MARCH 31 MEASUREMENT DATE) (MARCH 31 MEASUREMENT DATE)
--------------------------- --------------------------- ------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Assumptions:
Discount rate, end of year 5.00% 6.00% 6.00% 6.75% 6.75% 7.50% 6.75% 6.75% 7.50%
Rate of compensation
increases, end of year 5.50% 5.50% 5.50% 5.00% 5.50% 5.50% 5.00% 5.50% 5.50%
Expected long-term return
on plan assets, during the year 5.00% 6.00% 7.00% 8.75% 8.75% 8.75% 4.30% 4.30% 4.30%
Rate of increase in
per-capita cost of covered
health care benefits 9.50% 9.50% 10.00%
Components of net periodic
benefits
Cost (Income):
Service cost $ 3,118 $ 3,192 $ 3,424 $ 4,483 $ 3,481 $ 3,324 $ 1,095 $ 766 $ 872
Interest cost 6,052 6,025 6,658 8,872 8,004 7,409 2,651 2,861 3,108
Expected return on plan assets (9,386) (5,903) (9,413) (8,545) (8,048) (9,865) (165) (165) (153)
Net amortization and deferral 2,860 (438) 2,602 1,245 974 3,847 (3,059) (3,059) (2,634)
- -------------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost $ 2,644 $ 2,876 $ 3,271 $ 6,055 $ 4,411 $ 4,715 $ 522 $ 403 $ 1,193
</TABLE>
<PAGE>
32
The following tables reconcile the changes in benefit obligations and plan
assets in 1999 and 1998, and reconcile the funded status to prepaid or accrued
cost at June 30, 1999 and 1998:
<TABLE>
<CAPTION>
FOREIGN PENSION DOMESTIC PENSION OTHER POSTRETIREMENT
BENEFITS (APRIL 30 BENEFITS (MARCH 31 BENEFITS(MARCH 31
MEASUREMENT DATE) MEASUREMENT DATE) MEASUREMENT DATE)
-------------------- -------------------- --------------------
1999 1998 1999 1998 1999 1998
- ----------------------------------------------------------------------------------------------------------------------
<S> <C>
Change in projected benefit obligation:
Benefit obligation,
beginning of year $ 100,325 $ 101,648 $ 134,773 $ 109,694 $ 39,933 $ 38,908
Service cost 3,118 3,192 4,483 3,481
1,095 766
Interest cost 6,052 6,025 8,872 8,004 2,651 2,861
Effect of discount rate change 11,687 19,010
Foreign currency exchange rate changes (2,407) (5,284)
Other (2,281) 348 5,338 564 (646) (1,131)
Benefits paid (5,320) (5,604) (7,020) (5,980) (2,119) (1,471)
- ----------------------------------------------------------------------------------------------------------------------
Projected benefit obligation, end of year $ 111,174 $ 100,325 $ 146,446 $ 134,773 $ 40,914 $ 39,933
======================================================================================================================
Change in plan assets:
Plan assets at fair value,
beginning of year $ 103,352 $ 100,678 $ 124,480 $ 98,790 $ 3,846 $ 3,803
Actual return on plan assets 9,602 9,406 2,561 28,125 185 280
Employer contributions 2,780 2,707 2,966 3,545 2,581 1,234
Foreign currency exchange rate changes (4,107) (3,835)
Benefits paid (5,320) (5,604) (7,020) (5,980) (2,119) (1,471)
- ----------------------------------------------------------------------------------------------------------------------
Plans assets at fair value, end of year $ 106,307 $ 103,352 $ 122,987 $ 124,480 $ 4,493 $ 3,846
======================================================================================================================
Reconciliation of prepaid (accrued) cost:
Funded status of the plans $ (4,867) $ 3,027 $ (23,459) $ (10,293) $ (36,421) $(36,087)
Contributions after measurement date 786 584
Unrecognized net transition
(asset) obligation (2,392) (2,798) (782) (1,148)
Unrecognized prior service cost 5,487 6,180
Unrecognized gain on plan amendment (6,822) (9,882)
Unrecognized net (gain) loss 4,775 (2,681) 16,987 6,616 262 1,434
Additional minimum liability (6,176) (3,936)
- ----------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) cost, end of year $ (2,484) $ (2,452) $ (7,157) $ (1,997) $ (42,981) $(44,535)
======================================================================================================================
</TABLE>
Prepaid pension costs of $6.9 million and $6.7 million at June 30, 1999 and 1998
are included in other noncurrent assets; accrued pension costs of $16.5 million
and $11.1 million were included in long-term liabilities at June 30, 1999 and
1998. The accumulated benefit obligation of domestic pension plans at June 30,
1999 and 1998 was $109,418 and $99,517, respectively.
The accumulated postretirement benefit obligation cost trend rate is
assumed to decrease gradually from 9.5% in 1999 to 6.0% for fiscal year 2006. A
one percentage point increase in the assumed health care cost trend would
increase the accumulated benefit obligation by approximately $1.9 million and
the aggregate of the service and interest cost components of the net periodic
postretirement benefit expense for the fiscal year by approximately $121
thousand. A one percentage point decrease in the assumed health care cost trend
would decrease the accumulated benefit obligation by approximately $1.7 million
and the aggregate of the service and interest cost components of the net
periodic postretirement benefit expense for the fiscal year by approximately
$114 thousand.
Amounts included in the table above, which are applicable to the Company's
pension plans with benefit obligations in excess of plan assets are as follows:
<TABLE>
<CAPTION>
FOREIGN 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Projected benefit obligation $ 8,559 $ 7,924 $ 11,937
Accumulated benefit obligation 8,678 8,076 11,264
Fair value of plan assets 3,657 3,658 3,670
DOMESTIC 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Projected benefit obligation $ 23,337 $14,682 $ 6,910
Accumulated benefit obligation 11,644 6,889 3,657
Fair value of plan assets 0 0 0
</TABLE>
<PAGE>
33
NOTE 7. SHARE PURCHASE RIGHTS PLAN
- --------------------------------------------------------------------------------
In 1999, the Company distributed as a dividend one preferred share purchase
right for each outstanding share of common stock. Each right entitles the
shareholder to purchase 1/200 of a share of Series A Junior Participating
Preferred Stock ("Preferred Stock") at an exercise price of $110, subject to
adjustment. The rights will become exercisable only if a person or group
acquires or announce a tender offer for 15% or more of the Company's outstanding
shares of common stock. Under certain circumstances, the Board of Directors may
reduce this threshold percentage to not less than 10%. If a person or group
acquires the threshold percentage of common stock, each right will entitle the
holder, other than the acquiring party, to buy shares of common stock or
Preferred Stock having a market value of twice the exercise price. If the
Company is acquired in a merger or other business combination, each right will
entitle the holder, other than the acquiring person, to purchase securities of
the surviving company having a market value equal to twice the exercise price of
the rights. Following the acquisition by any person of more than the threshold
percentage of the Company's outstanding common stock but less than 50% of such
shares, the Company may exchange one share of common stock or 1/200 of a share
of Preferred Stock for each right (other than rights held by such person). Until
the rights become exercisable, they may be redeemed by the Company at a price of
one cent per right. The rights expire on February 13, 2009.
NOTE 8. EXECUTIVE STOCK PLANS
- --------------------------------------------------------------------------------
The Company's 1989 Executive Stock Plan by its terms expired on June 30, 1998,
and was replaced by the Company's 1997 Executive Stock Plan (together, the
"Plans"). Under the Plans, officers, directors and employees of the Company and
its subsidiaries may receive grants and/or awards of common stock, restricted
stock, incentive stock options, non-qualified stock options and reload options.
Reload options allow a participant to exercise an option and receive new options
by exchanging previously acquired common stock for the shares received from the
exercise. One new option may be granted for each share exchanged with an
exercise price equivalent to the market price at the date of exchange.
Accordingly, the issuance of reload options does not result in a greater number
of shares potentially outstanding than that reflected in the grant of the
original option. Up to 2 million shares of the Company's common stock may be
issued under each of the Plans. Pursuant to the Plans, non-qualified and reload
options have been granted to executives and key employees at an option price
equal to the fair market value of a share of common stock on the date of grant.
Options granted under the Company's stock incentive plans become
exercisable either one year or six months after the date of grant. Options that
become exercisable six months after the date of grant qualify for reload
options, which are also exercisable six months after the date of grant. Most
options expire ten years after the date of grant.
A summary of the Company's stock option activity and related information
for the fiscal year ended June 30 follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------- --------------------- --------------------
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
FOR THE YEARS ENDED JUNE 30: SHARES PRICE SHARES PRICE SHARES PRICE
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Outstanding, beginning of year 1,792,804 $34.55 1,224,473 $25.86 1,275,353 $24.09
Granted 265,630 32.79 1,239,978 38.10 193,950 32.31
Exercised (357,435) 27.05 (671,647) 25.27 (244,830) 21.73
Outstanding, end of year 1,700,999 35.85 1,792,804 34.55 1,224,473 25.86
Exercisable 1,666,230 36.00 1,534,783 34.42 1,137,778 25.14
Available for grant 4,612,569 4,872,599 3,466,489
</TABLE>
Of those available for future grant: 2,920,279; 3,188,167; and 2,859,562 for
1999, 1998, and 1997, respectively, are reload options.
The following table summarizes information concerning currently outstanding and
exercisable options:
<TABLE>
<CAPTION>
RANGE OF EXERCISE PRICES, PER SHARE $10 - $20 $20 - $30 $30 - $40 $40 - $50
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
For options outstanding:
Number outstanding 22,842 160,923 1,401,077 116,157
Weighted average remaining contractual life 1.0 6.8 8.7 8.5
Weighted average exercise price, per share $ 16.43 $ 25.78 $ 36.96 $ 40.19
For options exercisable:
Number exercisable 22,842 126,154 1,401,077 116,157
Weighted average exercise price, per share $ 16.43 $ 25.01 $36.96 $ 40.19
</TABLE>
<PAGE>
34
Certain potentially dilutive securities outstanding at June 30, 1999, 1998 and
1997, were not included in the computation of earnings per share, assuming
dilution, since their exercise prices were greater than the average market price
of the common shares during the period and, accordingly, their effect is
antidilutive. These shares totaled 1.61 million at a weighted-average exercise
price of $37.75 per share for 1999; 900 thousand shares at a weighted-average
exercise price of $40.90 per share in 1998; and 87 thousand shares at a
weighted-average exercise price of $35.38 per share in 1997.
Effective in fiscal year 1997, the Company adopted the disclosure
requirements of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("SFAS 123"). As permitted under SFAS 123, the
Company will continue to apply the Accounting Principles Board Opinion No.25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its plans. If compensation expense for the Company's stock
options issued in 1999, 1998 and 1997 had been determined based on the fair
value method of accounting, as defined in SFAS 123, the Company's net income and
earnings per basic and diluted share would have been reduced by approximately
$2.0 million or $.06 per share in 1999; $6.4 million or $.18 per share in 1998;
and $800 thousand or $.02 per share in 1997. These pro forma amounts may not be
representative of future disclosures because the estimated fair value of the
stock options is amortized to expense over the vesting period, and additional
options may be granted in future years.
The Black-Scholes option valuation model was used to estimate the fair
value of the options granted in fiscal year 1999, 1998 and 1997. Such models
include subjective input assumptions that can materially affect the fair value
estimates. The model was developed for use in estimating the fair value of
traded options that have no vesting restrictions and that are fully
transferable. For example, the expected volatility is estimated based on the
most recent historical period of time equal to the weighted average life of the
options granted. The Plan has characteristics that differ from traded options.
In management's opinion, such valuation models do not necessarily provide a
reliable single measure of the fair value of its employee stock options.
Principle assumptions used in applying the Black-Scholes model were as follows:
FOR YEARS ENDED JUNE 30, 1999 1998 1997
- -------------------------------------------------------------
Risk-free interest rate 5.72% 5.83% 6.31%
Expected life, in years 4.11 5.02 6.63
Expected volatility .299 .298 .298
Expected dividend yield 4.22% 3.15% 3.82%
Fair value of options granted $7.08 $9.88 $8.67
NOTE 9. COMMITMENTS AND OTHER MATTERS
- --------------------------------------------------------------
A material part of the Company's tobacco business is dependent upon a few
customers, the loss of any one of whom would have a material adverse effect on
the Company. For the years ended June 30, 1999, 1998 and 1997, one customer
accounted for revenues of $1.7 billion, $1.7 billion and $1.5 billion,
respectively.
The Company provides guarantees for seasonal pre-export crop financing for
some of its subsidiaries and unconsolidated affiliates. In addition, certain
subsidiaries provide guarantees that ensure that Common Market subsidies and
value-added taxes will be repaid if the crops are not exported or if the
subsidies are not properly distributed to Common Market farmers. At June 30,
1999, total exposure under guarantees issued for banking facilities of
unconsolidated affiliates and suppliers was approximately $31 million. Other
contingent liabilities approximate $55 million. The Company considers the
possibility of loss on any of these guarantees to be remote.
The Company's Brazilian subsidiaries have been notified by the tax
authorities of proposed adjustments to the income tax returns filed in prior
years. The total adjustments, including penalties and interest, approximate $30
million. The Company believes the Brazilian tax returns filed were in compliance
with the applicable tax code. The numerous proposed adjustments vary in
complexity and amount. While it is not feasible to predict the precise amount or
timing of each proposed adjustment, the Company believes that the ultimate
disposition will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
At June 30, 1999, the Company had approximately $50 million of loans
outstanding to a farmer cooperative in Argentina. The loans are secured by
tobacco and liens on real property, processing machinery and equipment and other
assets of the cooperative. Although management expects to recover amounts
represented by these loans, ultimate collection is contingent upon the ability
of the farmers to produce competitively priced tobacco suitable for export, the
financial condition and management of the cooperative, and the value of the
assets pledged as security for the loans.
The Company's operating subsidiaries within each industry segment perform
credit evaluations of customers' financial condition prior to the extension of
credit. Generally, accounts and notes receivable are unsecured and are due
within 30 days. When collection terms are extended for longer periods, interest
and carrying costs are usually recovered. Credit losses are provided for in the
financial statements and such amounts have not been material. In the lumber and
building product operations in Europe, it is traditional business practice to
insure a major portion of accounts and notes receivable against
uncollectibility. At June 30, accounts and notes receivable by operating segment
were as follows (in millions of dollars):
AT JUNE 30, 1999 1998
- -----------------------------------------------------
Tobacco $184 $254
Lumber and Building Products 87 91
Agri-Products 55 48
---------------
$326 $393
=====================================================
<PAGE>
35
NOTE 10. SEGMENT INFORMATION
- --------------------------------------------------------------------------------
In 1999, the Company adopted Statement of Financial Accounting Standards No.
131, "Disclosure about Segments of an Enterprise and Related Information."
Prior-period amounts have been restated in accordance with the requirements of
the new standard.
The standard requires reporting information regarding operating segments on
the basis used internally by management to evaluate segment performance.
Segments are based on product categories. The Company evaluates performance
based on operating income and equity in pretax earnings of unconsolidated
affiliates.
Reportable segments are as follows:
TOBACCO
Selecting, buying, shipping, processing, packing, storing, and financing leaf
tobacco in tobacco growing countries for the account of, or for resale to,
manufacturers of tobacco products throughout the world.
LUMBER AND BUILDING
Distribution of lumber and building products to the building and
construction market in Europe, primarily in the Netherlands.
AGRI-PRODUCTS
Trading and processing tea and sunflower seeds and trading other products from
the countries of origin to various customers throughout the world.
The accounting policies of the segments are the same as those described in Note
1. Sales between segments are insignificant. Sales and other operating revenues
are attributable to individual countries based on the location of the
subsidiary.
<TABLE>
<CAPTION>
REPORTABLE SEGMENT DATA SALES AND OTHER OPERATING REVENUES OPERATING INCOME
---------------------------------------- -----------------------------------
1999 1998 1997 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
Tobacco $ 2,944,762 $ 3,193,413 $ 3,028,419 $ 240,561 $ 272,031 $ 218,966
Lumber and building products 547,794 550,901 597,069 24,427 20,361 26,876
Agri-products 512,347 542,890 487,187 17,538 18,852 14,545
- -------------------------------------------------------------------------------------------------------------------
Total segments 4,004,903 4,287,204 4,112,675 282,526 311,244 260,387
Corporate expenses (13,904) (15,949) (11,696)
Equity in pretax earnings of
unconsolidated affiliates (14,066) (16,901) (11,864)
- -------------------------------------------------------------------------------------------------------------------
Consolidated total $ 4,004,903 $ 4,287,204 $ 4,112,675 $ 254,556 $ 278,394 $ 236,827
===================================================================================================================
</TABLE>
<TABLE>
<CAPTION>
SEGMENT ASSETS DEPRECIATION AND AMORTIZATION CAPITAL EXPENDITURES
------------------------------- ------------------------------- --------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Tobacco $1,411,221 $1,557,825 $1,552,911 $42,459 $41,516 $39,677 $56,111 $89,407 $45,363
Lumber and
building products 255,333 267,365 275,164 8,180 7,466 9,774 11,096 4,890 10,162
Agri-products 153,811 171,175 150,322 2,123 2,089 2,119 1,947 2,423 3,292
- --------------------------------------------------------------------------------------------------------------------------------
Total segments 1,820,365 1,996,365 1,978,397 52,762 51,071 51,570 69,154 96,720 58,817
Corporate 2,758 2,137 2,073
- --------------------------------------------------------------------------------------------------------------------------------
Consolidated total $1,823,123 $1,998,502 $1,980,470 $52,762 $51,071 $51,570 $69,154 $96,720 $58,817
================================================================================================================================
</TABLE>
<PAGE>
36
GEOGRAPHIC DATA
<TABLE>
<CAPTION>
SALES AND OTHER OPERATING REVENUES 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
United States $ 2,081,159 $ 2,146,575 $ 2,005,603
The Netherlands 782,496 827,528 814,779
All other countries 1,141,248 1,313,101 1,292,293
- -------------------------------------------------------------------------------------------------------------------
Consolidated total $ 4,004,903 $ 4,287,204 $ 4,112,675
LONG-LIVED ASSETS 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
United States $ 209,422 $ 206,866 $ 206,511
The Netherlands 82,033 78,543 79,144
Brazil 75,563 76,869 83,870
All other countries 190,289 158,026 123,153
- -------------------------------------------------------------------------------------------------------------------
Consolidated total $ 557,307 $ 520,304 $ 492,678
</TABLE>
NOTE 11. UNAUDITED QUARTERLY FINANCIAL DATA
- --------------------------------------------------------------------------------
Due to the seasonal nature of the tobacco, lumber and building products, and
agri-products businesses, it is always more meaningful to focus on cumulative
rather than quarterly results.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
FOR THE YEARS ENDED JUNE 30, QUARTER QUARTER QUARTER QUARTER
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
1999
Sales and other operating revenues $ 879,285 $1,297,719 $1,222,814 $605,085
Gross profit 136,584 168,532 142,752 162,616
Net income 27,057 41,424 29,354 29,441
Net income per common share-Basic 0.79 1.23 0.88 0.91
Net income per common share-Diluted 0.78 1.23 0.88 0.91
Cash dividends declared per common share 0.28 0.30 0.30 0.30
Market price range: High 38 3/4 38 1/16 34 11/16 28 13/16
Low 31 1/2 32 15/16 25 9/16 23 7/8
1998
Sales and other operating revenues $ 1,023,156 $1,265,157 $1,152,696 $846,195
Gross profit 142,235 161,529 167,543 171,797
Net income 32,773 38,085 31,546 38,854
Net income per common share-Basic .93 1.08 .90 1.10
Net income per common share-Diluted .92 1.08 .89 1.10
Cash dividends declared per common share .265 .280 .280 .280
Market price range: High 38 5/8 41 1/2 49 1/2 44
Low 32 36 37 34 5/8
===================================================================================================================
</TABLE>
In the fourth quarter of fiscal years 1999 and 1998, the Company recorded
approximately $6 million and $11 million in charges related to tobacco
inventory. The Company also recorded a gain of $16.7 million related to the sale
of an investment in the fourth quarter of fiscal year 1998.
<PAGE>
37
Report of Ernst & Young LLP, Independent Auditors
To the Board of Directors and Shareholders of Universal Corporation
We have audited the accompanying consolidated balance sheets of Universal
Corporation and subsidiaries as of June 30, 1999 and 1998, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended June 30, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Universal Corporation and subsidiaries at June 30, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1999, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
----------------------
Richmond, Virginia
August 5, 1999
REPORT OF MANAGEMENT
To the Shareholders of Universal Corporation
The consolidated financial statements of Universal Corporation have been
prepared under the direction of management, which is responsible for their
integrity and objectivity. The statements have been prepared in accordance with
generally accepted accounting principles and, where appropriate, include amounts
based on the judgment of management.
Management is also responsible for maintaining an effective system of
internal accounting controls designed to provide reasonable assurance that
assets are safeguarded and that transactions are executed in accordance with
management's authorization and properly recorded. This system is continually
reviewed and is augmented by written policies and procedures, the careful
selection and training of qualified personnel, and an internal audit program to
monitor its effectiveness.
Ernst & Young LLP, independent auditors, are retained to audit our
financial statements. Their audit provides an objective assessment of how well
management discharged its responsibility for fairness in financial reporting.
The Audit Committee of the Board of Directors is composed solely of outside
directors. The committee meets periodically with management, the internal
auditors and the independent auditors to assure that each is properly
discharging its responsibilities. Ernst & Young LLP and the internal auditors
have full and free access to meet privately with the Audit Committee to discuss
accounting controls, audit findings and financial reporting matters.
/s/ Hartwell H. Roper
- ----------------------
Hartwell H. Roper
Vice President & Chief Financial Officer
August 5, 1999
<PAGE>
38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
For the three years ended June 30, 1999, there were no changes in and
disagreements between the Company and its independent auditors on any matter of
accounting principles, practices or financial disclosures.
<PAGE>
39
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Refer to the caption, "Election of Directors" in the September 24, 1999 Proxy
Statement which information is incorporated herein by reference. The following
are Executive Officers as of September 24, 1999.
<TABLE>
<CAPTION>
Name Position Age
- ---- -------- ---
<S> <C>
H. H. Harrell Chairman and Chief 60
Executive Officer
A. B. King President and Chief 53
Operating Officer
H. H. Roper Vice President and 51
Chief Financial Officer
W. L. Taylor Vice President and 58
Chief Administrative Officer
D.G. Cohen Tervaert President and Chairman of the 46
Board of Deli Universal, Inc.
J. M. M. van de Winkel Executive Vice President and Vice 50
Chairman of Deli-Universal, Inc.
J. M. White, III Vice President, General Counsel 60
and Secretary
</TABLE>
There are no family relationships between any of the above officers.
All of the above officers have been employed by the Company in the listed
capacities during the last five years except:
J. M. M. van de Winkel was elected Vice Chairman of Deli Universal, Inc. in
1995. From December 1989 to January 1995, Mr. Van de Winkel was an Executive
Vice President with Deli Universal, Inc.
<PAGE>
40
ITEM 11. EXECUTIVE COMPENSATION
Refer to the caption, "Executive Compensation," in the Company's September 24,
1999 Proxy Statement, which information is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Refer to the caption, "Stock Ownership," in the Company's September 24, 1999
Proxy Statement, which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Refer to the caption, "Certain Transactions and Relationships," in the Company's
September 24, 1999 Proxy Statement, which information is incorporated herein by
reference.
<PAGE>
41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) The following consolidated financial statements of Universal
Corporation and Subsidiaries are included in Item 8:
Consolidated Statements of Income for the years ended June
30, 1999, 1998 and 1997
Consolidated Balance Sheets at June 30, 1999 and 1998
Consolidated Statements of Cash Flows for the years ended
June 30, 1999, 1998 and 1997
Consolidated Statements of Changes in Shareholders' Equity
for the years ended June 30, 1999, 1998 and 1997
Notes to Consolidated Financial Statements for the years
ended June 30, 1999, 1998 and 1997
Report of Ernst & Young LLP, Independent Auditors
(2) Financial Statement Schedules: None
(3) List of Exhibits:
3.1 Amended and Restated Articles of Incorporation
(incorporated herein by reference to the Registrant's
Form 8-A Registration Statement, dated December 22,
1998, File No.1-652).
3.2 Bylaws (incorporated herein by reference to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996, File No. 1-652).
4.1 Indenture between the Registrant and Chemical Bank,
as trustee (incorporated herein by reference to
Registrant's Current Report on Form 8-K, dated
February 25, 1991, File No. 1-652).
4.2 Form of Fixed Rate Medium-Term Note, Series A
(incorporated herein by reference to the Registrant's
Current Report on Form 8-K, dated February 25,1991,
File No. 1-652).
4.3 Form of 9 1/4% Note due February 15, 2001
(incorporated herein by reference to the Registrant's
Current Report on Form 8-K, dated February 25, 1991,
File No. 1-652).
4.4 Rights Agreement, dated as of December 3, 1998,
between the Registrant and Wachovia Bank, N.A., as
Rights Agent (incorporated herein by reference to the
Registrant's Current Report on Form 8-K, dated
December 3, 1998, File No. 1-652).
4.5 First Amendment to the Rights Agreement, dated as of
April 23, 1999, between the Registrant, Wachovia
Bank, N.A., as Rights Agent, and Norwest Bank
Minnesota, N.A., as Successor Rights Agent
(incorporated herein by reference to the Registrant's
Current Report on Form 8-K, dated May 7, 1999, File
No. 1-652).
4.6 Specimen Common Stock Certificate (incorporated
herein by reference to the Registrant's Amendment No.
1, dated May 7, 1999, to Registrant's Form 8-A
Registration Statement dated December 22, 1998, File
No. 1-652).
4.7 Form of 6 1/2% Note due February 15, 2006
(incorporated herein by reference to the Registrant's
Current Report on Form 8-K, dated February 20, 1996,
File No. 1-652).
<PAGE>
42
The Registrant, by signing this Report on Form 10-K,
agrees to furnish the Securities and Exchange
Commission, upon its request, a copy of any
instrument which defines the rights of holders of
long-term debt of the Registrant and its consolidated
subsidiaries, and for any unconsolidated subsidiaries
for which financial statements are required to be
filed that authorizes a total amount of securities
not in excess of 10% of the total assets of the
Registrant and its subsidiaries on a consolidated
basis.
10.1 Universal Corporation Restricted Stock Plan for
Non-Employee Directors (incorporated herein by
reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1991, File
No. 1-652).
10.2 Universal Leaf Tobacco Company, Incorporated
Supplemental Stock Purchase Plan, (incorporated
herein by reference to the Registrant's Annual Report
on Form 10-K for the fiscal year ended June 30, 1991,
File No. 1-652).
10.3 Universal Corporation Management Performance Plan
(incorporated herein by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1990, File No. 1-652).
10.4 Universal Leaf Tobacco Company, Incorporated
Management Performance Plan (incorporated herein by
reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1990, File
No. 1-652).
10.5 Universal Leaf Tobacco Company, Incorporated
Executive Life Insurance Agreement (incorporated
herein by reference to the Registrant's Annual Report
on Form 10-K for the fiscal year ended June 30, 1994,
File No. 1-652).
10.6 Universal Leaf Tobacco Company, Incorporated Deferred
Income Plan (incorporated herein by reference to the
Registrant's Report on Form 8, dated February 8,
1991, File No. 1-652).
10.7 Universal Leaf Tobacco Company, Incorporated Benefit
Replacement Plan (incorporated herein by reference to
the Registrant's Report on Form 8, dated February 8,
1991, File No. 1-652).
10.8 Universal Leaf Tobacco Company, Incorporated 1996
Benefit Restoration Plan (incorporated herein by
reference to the Registrant's Annual Report on Form
10-K, dated September 25, 1998, File No. 1-652).
10.9 Universal Corporation 1989 Executive Stock Plan, as
amended on December 1, 1994 (incorporated by
reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1994,
File No. 1-652).
10.10 Universal Corporation 1991 Stock Option and Equity
Accumulation Agreement (incorporated herein by
reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1991,
File No. 1-652).
10.11 Amendment to Universal Corporation 1991 Stock Option
and Equity Accumulation Agreement (incorporated
herein by reference to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended March 31,
1992, File No. 1-652).
10.12 Deli Universal, Inc. Management Performance Plan
(incorporated herein by reference to the Registrant's
Annual Report on year ended June 30, 1992, File No.
1-652).
10.13 Universal Leaf Tobacco Company, Incorporated 1994
Deferred Income Plan, amended and restated as of
September 1, 1998 (incorporated herein by reference
to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1998, File No.
1-652).
<PAGE>
43
10.14 Universal Corporation Outside Directors' 1994
Deferred Income Plan, restated as of October 1, 1998
(incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998, File No. 1-652).
10.15 Universal Leaf Tobacco Company, Incorporated 1994
Benefit Replacement Plan (incorporated herein by
reference to the Registrant's Annual Report on Form
10-K for the fiscal year ended June 30, 1994, File
No. 1-652).
10.16 Universal Corporation 1994 Stock Option and Equity
Accumulation Agreement (incorporated herein by
reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1994,
File No. 1-652).
10.17 Universal Corporation 1994 Amended and Restated Stock
Option Plan for Non-Employee Directors (incorporated
herein by reference to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December
31, 1998, File No. 1-652).
10.18 Universal Corporation Non-Employee Director
Non-Qualified Stock Option Agreement (incorporated
herein by reference to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December
31, 1994, File No. 1-652).
10.19 Form of Amendment to Non-Employee Director
Non-Qualified Stock Option Agreement (incorporated
herein by reference to Registrant's Quarterly Report
on Form 10-Q for the quarter ended December 31, 1998,
File No. 1-652).
10.20 Universal Leaf Tobacco Company, Incorporated Benefit
Restoration Plan Trust, dated June 25, 1997, among
Universal Leaf Tobacco Company, Incorporated,
Universal Corporation and Wachovia Bank, N.A., as
trustee (incorporated by reference to the
Registrant's Annual Report on Form 10-K for the
fiscal year ended June 30, 1997, File No. 1-652).
10.21 First Amendment to the Universal Leaf Tobacco
Company, Incorporated Benefit Restoration Trust,
dated January 12, 1999, between Universal Leaf
Tobacco Company, Incorporated and Wachovia Bank,
N.A., as trustee (incorporated herein by reference to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1998, File No. 1-652).
10.22 Form of Universal Corporation 1997 Restricted Stock
Agreement with Schedule of Awards to Executive
Officers (incorporated herein by reference to the
Registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1997, File No. 1-652).
10.23 Form of Universal Corporation 1997 Stock Option and
Equity Accumulation Agreement, with Schedule of
Grants to officers (incorporated herein by reference
to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended December 31, 1997, File No. 1-652).
10.24 Form of Universal Corporation Non-Employee Director
Restricted Stock Agreement (incorporated herein by
reference to the Registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1998,
File No. 1-652).
<PAGE>
44
10.25 1997 Non-Qualified Stock Option Agreement between
Deli-Universal, Inc. and D. G. Cohen Tervaert
(incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997, File No. 1-652).
10.26 Employment Agreement (dated January 15, 1998 between
Universal Corporation and Henry H. Harrell, Allen B.
King, William L. Taylor, Hartwell H. Roper, Edward M.
Schaaf, III, and James M. White, III (incorporated
herein by reference to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended December
31, 1997, File No. 1-652).
10.27 364-day Credit Agreement dated December 18, 1997
(incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997, File No. 1-652).
10.28 Three-Year Credit Agreement dated December 18, 1997
(incorporated herein by reference to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1997, File No. 1-652).
10.29 Universal Corporation Charitable Award Program
(incorporated herein by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1998, File No. 1-652).
10.30 Universal Corporation 1997 Executive Stock Plan
(incorporated herein by reference to Exhibit 4.7 to
the Registrant's Form S-8 Registration Statement
filed October 31, 1997, File No. 333-3927).
10.31 1997 Non-Qualified Stock Option Agreement between
Deli Universal, Inc. and J. M. M. van de Winkel
(incorporated herein by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
June 30, 1998, File No. 1-652).
12 Ratio of Earnings to Fixed Charges*
21 Subsidiaries of the Registrant.*
23 Consent of Ernst & Young LLP.*
27 Financial Data Schedule.*
* Filed herewith.
(b) Reports on Form 8-K
Form 8-K filed on May 7, 1999. The form reports the change of the
Company's Transfer Agent, Registrar, Dividend Paying Agent and
Automatic Dividend Reinvestment Plan Administrator from Wachovia Bank
N.A. to Norwest Bank Minnesota, N.A. The report also reports the
amendment of the Company's Rights Agreement making Norwest Bank
Minnesota, N.A. Rights Agent under that agreement.
Form 8-K filed on May 6, 1999. The form reports a press release issued
by the Company on May 5, 1999. The press release announces the
Company's earnings for the third quarter of its fiscal year 1999.
Form 8-K filed on April 27, 1999. The form reports a press release
issued by the Company on April 27, 1999. The press release announces
the Company's consolidation of its North American tobacco operations.
Form 8-K filed on April 16, 1999. The form reports a press release
issued by the Company on April 14, 1999. The press release announces
that a subsidiary of the Company had reached a preliminary agreement to
acquire certain tobacco purchasing and processing operations in Poland.
<PAGE>
45
(c) Exhibits
The exhibits listed in Item 14(a)(3) are filed as part of this annual
report.
(d) Financial Statement Schedules
All schedules are omitted since the required information is not present
in amounts sufficient to require submission or because the information
required is included in the consolidated financial statements and notes
therein.
<PAGE>
46
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
UNIVERSAL CORPORATION
September 28, 1999 By:/s/ Henry H. Harrell
-----------------------
Henry H. Harrell
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
<S> <C>
/s/ Henry H. Harrell Chairman, Chief Executive September 28, 1999
- -------------------- Officer and Director
Henry H. Harrell (Principal Executive Officer)
/s/ Allen B. King President, Chief Operating September 28, 1999
- ----------------- Officer and Director
Allen B. King
/s/ Hartwell H. Roper Vice President and September 28, 1999
- --------------------- Chief Financial Officer
Hartwell H. Roper
/s/ William J. Coronado Vice President and
- ----------------------- Controller (Principal September 28, 1999
William J. Coronado Accounting Officer)
/s/ William W. Berry Director September 28, 1999
- --------------------
William W. Berry
/s/ Charles H. Foster, Jr. Director September 28, 1999
- --------------------------
Charles H. Foster, Jr.
/s/ Richard G. Holder Director September 28, 1999
- ---------------------
Richard G. Holder
/s/ Jeremiah J. Sheehan Director September 28, 1999
- -----------------------
Jeremiah J. Sheehan
/s/ Hubert R. Stallard Director September 28, 1999
- ----------------------
Hubert R. Stallard
</TABLE>
EXHIBIT 12.
Universal Corporation and Subsidiaries
RATIO OF EARNINGS TO FIXED CHARGES
Years Ended June 30, 1999, 1998, 1997, 1996 and 1995
<TABLE>
<CAPTION>
<S> <C>
1999 1998 1997 1996 1995
Pretax income from continuing operations............. $197,719 $231,138 $171,941 $123,721 $55,768
Distribution of earnings from unconsolidated affiliates... 840 602 1,509 690 738
Fixed charges........................................ 57,744 64,881 65,827 69,543 69,819
Earnings............................................. $256,303 $296,621 $239,277 $193,954 $126,325
Interest............................................. $56,837 $63,974 $64,886 $68,754 $69,585
Amortized premiums and other........................... 907 907 941 789 234
Fixed Charges........................................ $57,744 $64,881 $65,827 $69,543 $69,819
Ratio of Earnings to Fixed Charges................... 4.44 4.57 3.63 2.79 1.81
</TABLE>
EXHIBIT 21. SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
ORGANIZED
UNDER LAW OF
------------
<S> <C>
UNIVERSAL CORPORATION Virginia
Universal Leaf Tobacco Company, Incorporated Virginia
Universal Leaf North America NC, Inc. North Carolina
Casa Exported Limited Virginia
Grassland Holding, Incorporated Kentucky
Tabacos Del Pacifico Norte, S.A. De C.V Mexico
Tabacos Argentinos S.A Argentina
Procesadora Unitab, S.A Guatemala
Latin America Tobacco Company Virginia
Maclin-Zimmer-McGill Tobacco Company, Incorporated Virginia
Simcoe Leaf Tobacco Company, Limited Canada
Universal Lab Services Inc. Virginia
Universal Leaf Export Company, Incorporated Guam
Universal Leaf International, Inc. Virginia
B. V. European Tobacco Company Netherlands
L'Agricola, S.p.A Italy
Deltafina, S.p.A Italy
Forestab, S.p.A Italy
Itofina, S.A Switzerland
Orient Leaf Tobacco Co., Inc. Philippines
Tanzania Tobacco Processors LTD Tanzania
Universal Leaf Tabacos Limitada Brazil
Tebe-Ele S.A. Comercio Exterior Ltda Brazil
Universal Leaf Far East, Limited Hong Kong
Universal Leaf Tobacco Poland Sp. z o.o Poland
Continental Tobacco, S.A Switzerland
Toutiana, S.A Switzerland
Nyiregyhazi Dohanyfermentalo Rt Hungary
Ultoco, S.A Switzerland
Limbe Leaf Tobacco Company, Limited Malawi
Lytton Tobacco Company (Malawi) Limited Malawi
Tanzania Leaf Tobacco Co., Ltd Tanzania
Gebruder Kulenkampff, Inc. Virginia
Gebruder Kulenkampff AG Germany
Industria AG Switzerland
Trestina Azienda Tabacchi, S.p.A Italy
Latina Tabacchi Greggi Italiani, S.p.A Italy
Zimleaf Holdings (Private), Limited Zimbabwe
Lytton Tobacco Company (Private), Limited Zimbabwe
Zimbabwe Leaf Tobacco Company (Private) Limited Zimbabwe
Casalee, Inc. Virginia
Madison Management Ltd. British Virgin Isles
Tobacco Trading International, Inc. British Virgin Isles
Casalee Transtobac Lieferanten A.G Switzerland
Casalee Transtobac (PVT) Ltd. Zimbabwe
Universal Leaf P.H., Inc Virginia
Lancaster Leaf Tobacco Company of Pennsylvania, Inc. Virginia
Lancotab, N.V Belgium
Lancaster Philippines, Incorporated Philippines
Southern Processors, Incorporated Virginia
Southwestern Tobacco Company, Incorporated Virginia
J. P. Taylor Company, Incorporated Virginia
Tobacco Processors, Incorporated Virginia
W. H. Winstead Company, Incorporated Virginia
Universal DC Holdings Ltd. USA/United Kingdom
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Universal Leaf (UK) Limited USA/United Kingdom
Universal Group Services (UK) Ltd. United Kingdom
Casalee (UK) Ltd. United Kingdom
Universal Eastern Europe Limited United Kingdom
Deli Universal, Inc. Virginia
Imperial Commodities Corporation California
Red River Foods, Inc. Virginia
HTC Commodities, Inc. Virginia
Red River Commodities, Incorporated North Dakota
Ermor Tabarama-Tabacos do Brasil Ltda Brazil
Deli-Mij Holdings Ltd. United Kingdom
Corrie, MacColl & Son Ltd. United Kingdom
Van Rees Ltd. United Kingdom
N.V. Deli Universal Netherlands
Deli Maatschappij B.V Netherlands
Deli Services B.V Netherlands
Jongeneel Holding B.V Netherlands
Jongeneel B.V Netherlands
Heuvelman Holding B.V Netherlands
Heuvelman Hout Beheer B.V Netherlands
Steffex Beheer B.V Netherlands
Handelmatschappij Steffex B.V Netherlands
B.V. Deli-HTL Tabak Maatschappij Netherlands
Van Rees B.V Netherlands
Van Rees Ceylon B.V Netherlands
Beleggings-en Beheermaatschappij "DE Amstel' B.V Netherlands
Indoco International B.V Netherlands
Industria Exportadora de Tabacos Dominicanos "Inetab" C. por Dominican Republic
Companhia Panamericana de Tabacos "Copata" Dominican Republic
</TABLE>
EXHIBIT 23.
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statements of our report dated August 5, 1999 with respect to the consolidated
financial statements of Universal Corporation and subsidiaries included in this
Annual Report (Form 10-K) for the year ended June 30, 1999.
Registration
Statement Number Description
---------------- -----------
33-55140 Form S-8
33-38148 Form S-8
33-56719 Form S-8
33-65079 Form S-3
333-39297 Form S-8
333-45497 Form S-8
/s/ ERNST & YOUNG LLP
Richmond, Virginia
September 23, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
"This schedule contains summary financial information extracted from the
financial statements of Universal Corporation as of and for the fiscal year
ended June 30, 1999, and is qualified in its entirety by reference to such
financial statements."
</LEGEND>
<CIK> 0000102037
<NAME> UNIVERSAL CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> JUN-30-1999
<CASH> 92,784
<SECURITIES> 0
<RECEIVABLES> 326,055
<ALLOWANCES> 0
<INVENTORY> 612,046
<CURRENT-ASSETS> 1,170,325
<PP&E> 757,998
<DEPRECIATION> 409,678
<TOTAL-ASSETS> 1,823,123
<CURRENT-LIABILITIES> 898,500
<BONDS> 221,545
0
0
<COMMON> 75,758
<OTHER-SE> 463,278
<TOTAL-LIABILITY-AND-EQUITY> 1,823,123
<SALES> 4,004,903
<TOTAL-REVENUES> 4,004,903
<CGS> 3,394,419
<TOTAL-COSTS> 3,394,419
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 56,837
<INCOME-PRETAX> 211,785
<INCOME-TAX> 75,963
<INCOME-CONTINUING> 127,276
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 127,276
<EPS-BASIC> 3.81
<EPS-DILUTED> 3.80
</TABLE>
